New York, United States — 03 July 2013 – Newcrest Mining Limited’s decision to write down the value of its mines by as much as US$5.5 billion will lead to the biggest one-time charge in gold mining history. It also heralds pain for competitors.
Barrick Gold Corporation, the biggest producer, Newmont Mining Corporation and Gold Fields Limited may be next, according to Jefferies International Limited, reports Bloomberg News. Nouriel Roubini “’ professor of economics and international business at New York University and known as Dr. Doom for predicting turmoil before the global financial crisis began in 2008 “’ says gold may drop to US$1,000 an ounce by 2015. The metal traded as low as US$1,277.20 in New York.
Gold companies that spent US$195 billion on acquisitions in a decade-long price boom are at risk of taking write-downs like Newcrest’s. Producers face more stresses with brokers from Goldman Sachs Group Incorporated to Citigroup Incorporated 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 write-down, 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.
A Bloomberg Index of 14 large gold miners, including Barrick and Newcrest, shows they have lost about US$164 billion in market value since gold, now in a bear market, peaked on 6 September, 2011. Taking into account Newcrest’s expected costs, gold companies will have written down assets by about US$17 billion in the past 16 months, data compiled by Bloomberg shows.
Gold declined 23% in 2013, sliding into a bear market in April, as the MSCI All-Country World Index of equities climbed 3.7%, and the dollar gained 3.5% against a basket of six major currencies. Gold rallied for 12 years through 2012 as the U.S. Federal Reserve cut borrowing costs to a record to bolster the economy. Bullion had its worst week since 2011 in the five days to June 21, tumbling 6.8%.
Newcrest has plunged 29% since the company said it expected to book write-downs on mines in Papua New Guinea, Ivory Coast and Australia in its full-year results. The Melbourne-based company, which expects to write down its assets by about 25% of their book value as of 31 December, has seen its market value fall A$3.8 billion this month to A$7.3 billion on June 24.
South African gold miner Harmony Gold Mining Company, which partners with Newcrest in a Papua New Guinea venture, said last week that it expected to write down its share of the operation by the end of July.
Goldcorp Incorporated, the world’s biggest producer by market value, and African Barrick Gold plc are among other major producers facing this possibility in a probable storm of write-downs in the industry.
Source: Bloomberg News. For more information, click here.