The meaning of 'tier one' in the mining industry is often unclear, leading to confusion and misinterpretations. This article explores the various definitions used by different companies and analysts, highlighting the lack of a standardized framework. It delves into the specific criteria employed by gold miners like Newmont and Barrick, while also examining the broader definition proposed by Richard Schodde of MinEx Consulting, who considers 'tier one' deposits to be substantial, long-lived, and economically viable.
The term 'tier one' is frequently used in the mining industry, often alongside 'world-class,' but its meaning has become increasingly vague. Analysts and company presentations alike use it loosely, without a clear definition. This ambiguity stems from the fact that different entities interpret 'tier one' in distinct ways. While major mining companies like BHP and Rio Tinto utilize the term, they haven't publicly established criteria for classifying a deposit as 'tier one.
'Gold mining companies, however, tend to be more specific. Both Newmont Corporation and Barrick Gold have formal definitions. Newmont defines a tier one asset as one capable of producing over 500,000 gold equivalent ounces annually at average all-in sustaining costs that fall within the lower half of the industry cost curve. It must also boast a mine life exceeding 10 years and be located in a country with investment ratings within the A and B ranges according to Moody's, S&P, and Fitch. Barrick's definition for a gold asset mirrors Newmont's, except for the country rating criteria, which is understandable given the concentration of its assets in Africa. Barrick defines a tier one copper asset as one with a reserve potential exceeding 5 million tonnes of contained copper and C1 cash costs per pound situated in the lower half of the industry cost curve.AngloGold takes a slightly different approach, defining tier one as 'longer life, lower cost with scale/growth potential' and tier two as 'steady performers, reliable cash generators, shorter life' but with potential to enhance cost competitiveness. Richard Schodde, managing director of Melbourne-based MinEx Consulting, has been actively refining his definition of a tier one deposit since 2006. He views tier one deposits as 'company-making' mines, characterized by their substantial size, longevity, and low operating costs. Schodde cites Olympic Dam, Broken Hill, and Cadia East in Australia as prime examples. Based on his calculations, a tier one deposit generates over US$300-600 million in annual revenue for over 20 years using long-run commodity prices. It must also be economically robust, capable of withstanding fluctuations in the business cycle and achieving a favorable risk-adjusted net present value at final investment decision exceeding US$1 billion. Schodde emphasizes that these criteria remain relevant despite the evolving market landscape
TIER ONE MINING DEFINITIONS INVESTMENTS ECONOMICS GOLD MINING COPPER MINING
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