Gold mines… here come the write-downs
The past few weeks we’ve been reporting on a very interesting trend in the gold market, namely that gold mines are starting to shutter because with gold at 3 year lows they simply can’t get the precious metal out of the ground and make any money.
Today we learn courtesy of Bloomberg that one of the biggest gold miners on the planet has written-down the value of its gold mines by as much as $6bn – the biggest one time charge in gold mining history:
Newcrest Mining Ltd. (NCM)’s decision to write down the value of its mines by as much as A$6 billion ($5.5 billion) will lead to the biggest one-time charge in gold mining history. It also heralds pain for competitors.
And it looks like many other gold miners are looking to do the same:
Barrick Gold Corp. (ABX)livepage.apple.com, the world’s biggest producer, Newmont Mining Corp. (NEM) and Gold Fields Ltd. (GFI) may be next, according to Jefferies International Ltd….
All caused by the price drop and the negative tone for the outlook for gold:
Gold companies that spent $195 billion on acquisitions in a decade-long price boom are at risk of taking writedowns like Newcrest’s. Producers face more stresses with brokers from Goldman Sachs Group Inc. to Citigroup Inc. cutting price forecasts as bullion heads for its first annual drop since 2000
“We would expect that there would be several, if not many companies, who would also in the next reporting period be coming to a list of impairments,” Michael Elliott, sector leader for Ernst & Young LLP’s global mining practice, said in a phone interview from Sydney. “It’s just a question of timing, and who had the largest exposures.
Newcrest’s writedown, which Australia’s biggest producer said is a result of gold’s slump, is probably the largest aggregate charge announced in the industry, said Elliott, who’s been advising producers for more than 30 years.
The top 14 largest gold miners in the world have already lost about $164bn in market-cap:
A Bloomberg Index of 14 large gold miners, including Barrick and Newcrest, shows they have lost about $164 billion in market value since gold, now in a bear market, peaked Sept. 6, 2011.
Which means that some $17bn has been written-down in the past 16 months:
Taking into account Newcrest’s expected costs, gold companies will have written down assets by about $17 billion in the past 16 months, data compiled by Bloomberg show.
Clearly the gold (and silver) miners are really hurting at the moment and with news of massive write-downs on the table the idea that more gold mines are going to be moth-balled looks like a distinct possibility.
We will watch with keen interest the next GFMS gold survey because it’s looking likely that we’ll see the first negative y/o/y decline in mine production in 5 years.
And don’t expect any help from scrap coming to market:
Huge physical demand plus falling gold mine production – should not equal a falling price, but it has – we’ll wait and see just how much longer that can continue.
Link to this article: : http://www.goldmadesimplenews.com/mining/gold-mines-here-come-the-write-downs-11044/