Big would appear to be better for the Australian and New Zealand gold-producing companies this year as economies of scale and subsequent cost cutting will largely determine their financial performance.
However, for the "junior" exploration companies the noose is tightening, with their ability to drum up more exploration financing constrained by risk-adverse investors and expensive loans, prompting the likelihood of more of their work being postponed, deferred or cancelled altogether.
Regardless of the heady $US1000 per ounce attained during the past year, containing the cost of production per ounce during 2009 remains crucial for the major companies in order to span the troughs after having ridden the peaks.
The volatility of the gold sector during the past two years, and now the effects of the credit crunch, prompted ABN Amro Craigs broker Peter McIntyre to speculate New Zealand's gold producing and exploration sector would likely be "heavily reliant" on finding joint venture partners - from the largest producer, Oceana Gold, through to the most promising New Zealand exploration "junior", Glass Earth Gold.
"The key during the next 12 to 18 months will be for these companies finding joint-venture partners," he said.
Gold has been trading down since its record high and was about $US827 this week.
Mr McIntyre forecast that in the short term this year prices would remain volatile, easing back to $US670-$US720.
However, with "credit-crunch bailout" trillions being poured into economies by governments around the world, he predicted that in 2010 rising inflation would push up demand for gold to beyond the $US1000 record.
"The governments' financial stimulus and weakening of the US dollar will set a position for gold . . . as a hedge against inflation for investors," he said.
He cautioned, however, that the payment of debt from major United States hedge funds was "still being unwound", and it remained uncertain how much gold would find its way to market during the year.
Investors were more closely scrutinising gold companies' asset quality, mine life, development advances, balance-sheet strength and share liquidity, Mr McIntyre said.
"Investors are in a higher-risk environment than they were maybe 12-18 months ago."
The more than five-year Australian mining boom offered investors a wild ride in mineral resources, with soaring global commodity prices yielding record 1000%-2000% gains and fuelling capital gains from escalating share prices, affecting both junior explorers and major producers.
Since then, however, as in many share-market sectors such as retail, utilities and ports, investors in the mining sector are opting for less risky "defensive" stocks with a proven track record, quality assets and the size to ride out a downturn and still offer the prospect of share growth and some form of dividend.
New Zealand investors have increasingly looked towards Australian stocks to broaden their portfolios during the past two to three years, with many brokers now reporting 50% or more of some portfolios in Australian stocks.
In the Australian gold sector, ABN is recommending premier miners Barrick Gold, AngloGold Ashanti and Newmont (which owns New Zealand's second-largest gold mine, in Waihi), while gold majors Newcrest and Lihir Gold are also on the list to consider.
"These are the liquid stocks to hold to gain exposure to sector growth," Mr McIntyre said.
A symptom of the decline in global resource stocks is evident on the mining-friendly Toronto stock exchange, where New Zealand companies Oceana, Glass Earth and Underworld Resources are dual or triple listed. .
Mr McIntyre noted TSX listings were down by more than 50%, mirroring a downturn in interest in Australian capital raising during the past 18 months.
"The TSX have had good access to capital for companies, but this has now fallen by the wayside," he said.
New Zealand's largest producer, East Otago-based Oceana Gold, which is listed on the ASX and NZX as well as the TSX, remains on track to deliver its forecast production of up to 280,000-290,000oz from its Macraes open pits and Frasers underground mine in Otago, bolstered by production from its relatively new open-pit Reefton operations on the West Coast.
Before Oceana's cashless merger with Climax in late 2006, to effect the takeover of the Didipio gold/copper-mine development in the northern Philippines, Oceana had a market capitalisation of $A302 million ($NZ372.6 million).
While the merger created a $A523 million company, Oceana hit a stumbling block last June when its Didipio development costs blew out by double to $US320 million.
The firm's problems were compounded by the global credit crunch, which prompted it to mothball Didipio last December after a fruitless search for $US185 million of outside funding.
Yesterday, Oceana's market capitalisation stood at $NZ56 million, with its shares around NZ35c and a six-month rolling price of between $NZ1.17 and NZ22c.
"The market has priced in the risks of Didipio, and also the burden on the New Zealand operations at Macraes and Reefton, essentially Oceana's cash cow, to provide cashflow," Mr McIntyre said.
"This will have to be a year of `back to basics' for Oceana."
Sector analysts had been wary of the 2006 Climax merger from the start, but Oceana had likely spent too much on the project to date to walk away from it, Mr McIntyre said.
While consolidation of the smaller gold "junior" explorers in both New Zealand and Australia was forecast in early 2008, most New Zealand juniors were able to see out the year with existing financing, surveying, drilling and making good progress on their respective exploration programmes, despite the appearance of the first casualties of the global credit crunch.
News during the past year from start-up juniors in New Zealand has dried up, with talk of listings tailing off and work in progress being scaled back and little or no fanfare surrounding the release of results.
Mr McIntyre said many junior and mid-cap-range companies had expected the minerals boom to become a "super-cycle" lasting until 2014-16, but it had come to an end far faster than they had expected or made allowances for.
In the South, several companies fill the junior exploration role, including Tasman Gold, Glass Earth Gold, Ophir Gold, Underworld Resources, Australasia Gold, and Prophecy Mining.
Glass Earth, which has the country's largest exploration permit, blanketing a large area of Otago, announced 10 months ago it was tripling its local exploration budget to $3 million, believing it may have found two Macraes-type gold-bearing ore bodies.
It raised $10 million in October 2006 in a dual listing on the NZX and TSX and a further $6.3 million from Canada in August 2007.
By June last year, it had about $4 million cash in hand and intended drilling five sites around Otago at a cost of about $3 million, having earlier completed a $4-million aerial survey of Otago.
Mr McIntyre said Glass Earth had developed a good joint-venture relationship with Newmont on a tenement next to its Waihi mine but had spent $700,000 to $950,000 per quarter on "proving up" its own "green-fields" exploration area.
However, he said with the recent decline in mineral prices, any majors which may have been interested in buying out Glass Earth's tenements were likely to "wait a year or two", knowing there was a "likelihood" of gold in the ground.
"Glass Earth are likely to be going back to the market some time to raise capital, but that is going to be difficult for them," Mr McIntyre said.
Contacted yesterday, Glass Earth chief executive Simon Henderson said the company retained "less than $3 million cash in hand" but was capitalised to continue its Otago geologist surveys and "intermittent drilling" through to the budgeted date in June 2010.
"We are being circumspect on spending. Our future funding is predicated on improvements in the financial markets," he said.
He said this would continue until the international financial crisis had run its course.
In any event, Glass Earth would have to consider recapitalisation by the end of the year but would also welcome expressions of interest of a joint-venture nature, he said.
"We'll make sure every drop of cash goes as far as possible and that all goes into the ground [work]," Mr Henderson said.
Glass Earth pegged more than 13,000sq km of ground around Otago for its $4 million aerial survey, and last November relinquished 10% of the ground, with an application filed with Crown Minerals for the 90% balance to be extended for two years.
Recent drilling at the Sheepwash prospect, south of Macraes, and Sparrowhawk to the northwest had revealed "nothing economic" other than a good cross section of valuable data.
He said areas around Lawrence and Waipori, including prospects Serpentine, Game Hen and Gold and Pine, could undergo "intermittent drilling" this year and he expected four geologists would continue to work around Otago for the rest of the year.
Last April, Crown Minerals minerals manager Matthew Brown said there had been a surge of interest in Otago, and it remained one of the country's most prospective permitted areas.
Yesterday, however, he said juniors were now most concerned about "cash burn", and the majority of permit holders, both large and small, were reassessing their permit holdings and considering relinquishing some acreage in order to save money.
"It's not only the costs of holding the permits but also financing the [mandatory] work programmes required under each permit," Mr Brown said.
While he expected more pressure to come on juniors' work, he noted large cashed-up Australian companies were actually showing more interest in New Zealand.
"They are watching their cash too, but when they spend, what they are looking for is security of tenure," Mr Brown said.
To date, cost cutting had included staff cuts, a reduction in work programmes, relinquishment of permits and the deferral of more expensive aspects of work programmes.
"The year ahead is going to be tougher for everyone because of the financing problems," Mr Brown said.
During the next 12 to 24 months Mr Brown expected a slew of requests from permit holders saying they were unable to complete the mandatory work programmes.
"Because of the lack of cash in the market they won't be able to complete programmes. We will have to assess each application [to waiver] on a case-by-case basis," he said.
Newmont's Waihi operations in the Coromandel delivered about 144,000oz of gold and 568,000oz of silver in 2008, and the firm smelted its 2 millionth ounce of gold in November, a feat Oceana achieved in November 2005.
Newmont, which has 34,000 employees and contractors at mine sites on five continents, has said it is evaluating ways to extend mining at its Martha open pit and is actively exploring for gold locally.
Production continues at its nearby Favona underground mine, which is expected to keep producing until 2010-11.
The credit crunch has put paid to the notion that New Zealand's gold sector is in good heart and has changed the fundamentals of exploration and production, prompting the sharpening of accountants' pencils in the aftermath of easy-money days.
The year 2009 will not be about who prospers, and by how much, but about who survives in an environment still driven by now-wavering Chinese demand, the growing effects of the credit crunch and global recession.
Mr McIntyre's financial disclosure document is available on request.
