Sector consolidation has created
portfolios that are hard to differentiate
in terms of their position on the global
grade-tonnage curve
􀀗 The trend toward portfolios made up of
larger, lower-grade deposits remains in
place, although some companies have
improved their position over time
􀀗 The relationship between asset quality –
as defined in this report – and ROIC is,
surprisingly, more tenuous
In our August 2007 Senior Gold Book: A problem of
logarithmic proportions, we analyzed the composition of the
portfolios of gold mining companies by comparing each
asset, and the average for each, against the global gradetonnage
curve. That analysis highlighted which companies
have portfolios made up of small assets – defined as those
that have low grades relative to the mine’s tonnage, or
tonnage that is too low for a given grade, and which
therefore sits below the curve – and those that have assets
that are above curve. Most companies have “average”
portfolios, meaning that they sit on or close to the curve, and
we believe this is due to ongoing consolidation in the sector.
In this report, we build on the work that we published in
August 2008 by introducing a time factor, analyzing how the
portfolios have evolved relative to the grade-tonnage curve
over time. This analysis confirms that, for most companies,
the position on the curve has shifted to the right, ie toward
portfolios made up of larger-tonnage, lower-grade deposits.
It also confirms that the industry has found it very hard to
beat Mother Nature, as companies find it difficult to
consistently maintain a position above the global gradetonnage
curve.
We hypothesize that better-quality portfolios would deliver
higher returns on invested capital (ROIC), but the evidence
suggests that there is a tenuous link between the two. Some
companies show improvement in ROIC as asset quality
improves, but for the sector as a whole, it is difficult to
establish that such a relationship exists.

Grade, tonnage, and time
􀀗 Our review of the industry’s position vis-à-vis the global gradetonnage
curve continues to find a trend toward larger, lower-grade
assets
􀀗 Very few companies have managed to create portfolios that beat
the global average, but even these companies have found it
difficult to generate above-average returns on invested capital
􀀗 We tested the hypothesis that higher-quality portfolios – defined
as those that sit above the grade-tonnage curve – would deliver
better returns, and were surprised to find no clear-cut relationship

Summary
In our August 2007 Senior Gold Book: A problem
of logarithmic proportions, we analyzed the
composition of each company’s portfolio relative
to the grade-tonnage curve, and showed how a
company’s asset base could be judged relative to

the global average. We also showed that, for the
industry as a whole, it has become very difficult
to build portfolios that are materially better in
terms of either grade or tonnage than the global
average. Thus, companies that have taken on large
deposits containing multimillion ounces have
done so by accepting lower grades (with, in many

cases, significant byproduct credits). For
companies attempting to sustain a large
production base, this implies a further move down
the grade-tonnage curve and a greater reliance on
deposits that contain copper or other base metals.
On the other end of the curve – companies that
own small, high-grade deposits – the challenge is
to maintain the quality of the portfolio, not
allowing it to become diluted by adding lowergrade
assets. The consolidation of the gold mining
industry, an ongoing process over the past 20
years, has created a smaller group of companies
that are an agglomeration of assets of varying
qualities – something that shows up very clearly
when the individual mines are plotted on the
grade-tonnage curve.
In our August 2007 Senior Gold Book, we also
touched briefly, but did not elaborate, on another
subject: how the companies’ portfolios had
evolved over time relative to the grade-tonnage
curve. We did highlight one example, showing
how Goldcorp, through its M&A activity, had
transformed itself from a low-tonnage, high-grade
company into a high-tonnage, low-grade
company. The implication was that the company
had diluted its asset quality as a result of the
acquisitions that it made, although in fairness to
the company, we did not graph the change in time
relative to the grade-tonnage curve itself.
Moreover, we did not compare how other
companies fared over time.
In this report, we address those shortcomings by
looking in detail at how the portfolios have
evolved over time relative to the grade-tonnage
curve. This allows us to judge more precisely
which companies have added “value” – defined as
moving the portfolio to a better position relative
to the grade-tonnage curve – through their
exploration and corporate activities; which
companies have destroyed “value”; and which

companies have simply maintained their position
relative to the global average.
Note that we have excluded two companies, Peter
Hambro Mining and Royal Gold, from this report.
We excluded Peter Hambro because it has only
recently begun to report resources under the
JORC Code, having previously reported
exclusively using the Russian classification,
which we do not consider robust enough for the
purposes of this analysis. We excluded Royal
Gold because, as a royalty holder, it does not have
a portfolio that is comparable to the global gradetonnage
curve.
One of the other issues that we did not explore in
the August 2007 Senior Gold Book was the
relationship between asset quality and returns.
One of the implications of the grade-tonnage
curve analysis is that those companies that have
better portfolios – defined as a position above the
grade-tonnage curve – should also deliver better
returns, and vice versa. To test this hypothesis, we
created an index of asset quality and correlated it
against return on invested capital (ROIC) over
time for each company. Surprisingly, we found it
difficult to establish a clear relationship between
asset quality and ROIC.
Methodology reviewed
To create the global grade-tonnage curve, we
began by creating a database of gold projects,
beginning with the reserves of the gold companies
that we cover, and then adding the reserves of a
handful of larger midtier companies that we do
not cover, as well as junior companies with largescale
single assets, and finally a large number of
junior company reserves. The resulting database
contains 215 deposits that, while not a
comprehensive list of global gold projects, could
be said to be representative of the institutional
world of gold companies in which we are
interested.