KEY POINTS:
Hundreds of metres below the Karangahake Ranges, geologist Murray Stevens squelches through a muddy tunnel known as the Talisman mine, pointing out quartz veins in the rock that could contain gold.
Stevens and the company he is working with, listed explorer Heritage Gold, have high hopes for this mine, as some drill samples have contained a high proportion of gold.
The steadily rising price of gold will have little effect on this year's local output - predicted to be worth a healthy $300 million - but it is spurring renewed vigour in New Zealand's gold exploration industry. Virtually non-existent in the 1970s and early 1980s gold exploration in New Zealand is having a revival.
Consulting geologist Richard Barker believes New Zealand's mineral mining scene is at a turning point. Mineral exploration spending is at a 15-year high, says Crown Minerals, and has been dominated by the world's second biggest gold producer, US-listed Newmont Gold at Waihi.
Raising money to explore in New Zealand has become easier, says Barker. Five years ago "it would have been nearly impossible".
Australian explorers Auzex Resources, Aurora Minerals and Australasia Gold have raised money overseas for their New Zealand operations, and Glass Earth, the country's largest explorer by landholding, raised $5.2 million in New Zealand and $4.8 million from Canadian company St Andrew Goldfields to list on the NZAX last year.
Underworld Resources (NZ), set up in January last year, raised $2.18 million in an initial public offering, mostly in Canada, to explore in Otago and on the East Cape of the North Island.
Explorers, or junior gold stocks, generally fly beneath the mainstream investor's radar. Punting on the juniors can leave investors weary and dissatisfied - most juniors don't pay dividends and tend to rack up losses for a long time - or incredibly well-rewarded.
Shares in Canadian junior Aurelian, which began drilling a substantial gold deposit in Ecuador early last year, were at C72c on the Toronto Stock Exchange in March last year, but then a high of C$40 in November and have since been selling for around C$24.
For investors, it's all about risk.
One Heritage Gold investor chose an exploration company over an established miner because of the uncertainty involved.
"Yes, OceanaGold makes a profit and produces gold but it's pretty predictable."
He bought a couple of hundred thousand shares four years ago and accepts that if Heritage Gold finds little or nothing he could lose his money. "I only invested as much as I could afford to lose."
When it listed on the NZX in 1987, Heritage Gold shares were valued at 50c. They have averaged around 6c, but jumped to 9c after the company said on March 12 it was to seek uranium in Australia.
A group of high-profile local investors (none of whom wanted to be named) have taken a stake in fledgling Otago explorer Ophir Gold. The group, investing under the name Country Club Investments, seeks its reward from the potential capital gains.
"We are aware of the high risk profile of exploration," a spokesman said in an email.
"However, the investment rewards for success can be considerable as these companies expand their resource base and find new deposits."
Ophir's total permit area in Otago has the potential to yield more than $200 million of gold deposits, the company told the Herald on Sunday in June.
Veteran mining analyst and Heritage Gold investor Warwick Grigor, of Sydney, has a gold portfolio consisting solely of gold exploration companies. He too, is in it for the capital gains.
"You don't buy into gold exploration companies for the income - there isn't any. You buy because the company might have land worth $50 an acre now but when they find something it'll be worth 10 times that."
Explorers and their investors are "eternal optimists", says Heritage Gold founder and outgoing boss, Peter Atkinson. They have to be - Heritage Gold has been around for two decades yet has only produced "promising" samples from its prospects.
In March the company announced it had set its sights on the lucrative uranium market through a joint exploration venture in Australia with a local investment group.
"Mining is a bit like eating a plum pudding, sometimes you hit the plums, sometimes you don't," Atkinson said.
Heritage Gold doesn't pay dividends, and its balance sheet generally shows a loss. An obviously frustrated Atkinson explains that losses show the company has spent more on exploration, "so actually we're increasing our assets."
Investors got returns in the form of capital appreciation rather than dividends until operations reached mining production stage, he told the Herald last year.
"The only reason people would invest in junior explorers is for that reason. You get in cheaply but you take the advantage of any rises in price. If the company is successful, you take the advantage of dividends in due course."
Glass Earth's chief operating officer, Simon Henderson, is confident results from its $4 million airborne geophysical survey in Otago, to which the Otago Regional Council contributed $1 million, will keep investors happy. It holds exploration permits in Waihi, Otago, and the volcanic Central Plateau.
The company's approach has been to amass a vast amount of land and apply new technology to uncover data that older methods would not pick up.
Raw data from the survey shows drill samples with "economically interesting" values but no "truly economic" ones, Henderson says.
Since listing in October Glass Earth shares have hovered around 20c to 22c, below their issue price of 25c.
From lows of less than US$300 an ounce in 2001, the spot price for gold has steadily risen, hitting a six-week high of US$686 an ounce on Tuesday.
But Grigor believes competition from other metals is taking the shine off gold for investors.
"Nickel and zinc and copper have been performing well thanks to demand from China and India. Gold shares haven't been performing that well over the past few years and there aren't that many new projects."
But gold has not yet had its day, Grigor forecasts. It usually performs best at the end of an economic cycle and is favoured for inflationary environments.
If the Government cranks up interest rates to knock inflation on the head, gold prices drop.
"My belief is gold will go up, possibly over US$1000 an ounce, driven by inflationary fears and Middle East political instability."
New Zealand's gold production has ranged between 260,000-380,000 ounce a year since 1992, according to Crown Minerals figures, and last year's production is likely to produce about $300 million worth.
Only two companies in New Zealand are mining gold deposits - Australia's Oceana Gold from the Macraes mine in Otago and the Reefton and Sam's Creek deposits near Nelson, and the world's biggest producer, US-listed Newmont, at its Waihi mine.
Oceana Gold says it will almost double production next year, from 180,000 ounces a year to more than 300,000 ounces at its Reefton and Macraes projects, and expects to produce 190,000 ounces of gold this year from Macraes and Reefton's new Globe Progress mine.
An independent report published in 2001 by the then-Institute of Geological Sciences (now the Institute of Geological and Nuclear Sciences) says the Coromandel alone holds billions of dollars-worth of gold and silver.
But most of that land has been protected by the Department of Conservation since 1991. It is possible to mine it, but many in the industry say the lengthy and complicated process to do so is a deterrent.
A lack of geological land data is also deterring exploration, and steering possible investment to Australia, says Heritage Gold's Atkinson, also president of the NZ Minerals Industry Association.
"Companies aren't looking for a free ride, just that there's good data available on which they can base their projects and strategies and bring investment into the country."
But Glass Earth's Henderson reckons the industry just needs a couple of big finds by the juniors.
"If juniors like ourselves can demonstrate that there are world-class gold deposits to be found the big players will come."
On the list
Stock exchange listings:
* Heritage Gold: NZX, ASX
* Aurora Minerals: NZX, ASX
* Australasiagold: ASX
* Auzex: ASX
* Glass Earth: TSX, NZAX
* Neptune Minerals: AIM
* Ophir Gold: Not listed
* Underworld Resources: TSX
* Seafield Resources: CNQ (Canada's alternative stock exchange)
* CanAlaska: TSX
* OceanaGold: NZX, ASX
* Newmont Waihi: NYSE, ASX, TSX
Rock out
NZ annual gold output in ounces
* Martha Mine, Waihi: 166,296, from hard rock
* Macraes, Otago: 167,141 from hard rock
* Westland: 5414, from placer gold
* Otago/Southland: 290, from placer gold
* Nelson: 565, from placer gold
* Placer is alluvial gold, found in river gravel and beach sand deposits. (Source: Crown Minerals)
