SYDNEY/TORONTO – (Reuters) – The pain is not likely to be over for investors in mining shares after the steepest drop in gold prices in a generation led to a $6 billion asset writedown at Australia’s Newcrest Mining, fuelling speculation of more to come.
A $200 plunge in prices in two days in April heightened fears that gold’s 12-year rally may have topped out.
For nearly a month the price has languished around 1,400 an ounce, which could force more miners to write down the value of their reserves – calculated based on a higher price – and eroding the value of projects, some of which may no longer be profitable.
Gold miners were already struggling with the impact of soaring costs, including higher wages for workers and fuel prices, which have reduced margins and eaten into cash generation.
“We certainly expect we will see further writedowns from other producers as we … get closer to reporting season. It could be a trend,” said David Lennox, an analyst at Fat Prophets.
Newcrest, Australia’s biggest gold miner, said on Friday it would write down the value of mines in Australia, Papua New Guinea and Africa.
That turned the spotlight to miners such as African Barrick Gold, owned by major Barrick Gold, and Newmont Mining Corp, which use prices near or above current spot levels to value reserves.
“I’m sure we’ll see more such actions in the industry,” Gordon Galt of Taurus Funds Management Pty Ltd said.
“Over the next three months, we will see a substantial amount of the gold equities sector getting rid of high-cost ounces,” said Galt, a former managing director at Newcrest.
Major diversified miners have been battered by writedowns in recent months, sending top chief executives packing after ambitious deals struck during the boom years turned sour. And the gold industry has not been immune.
Barrick Gold, the world’s top gold producer, wrote off $4.2 billion in February, largely related to its Lumwana copper business, acquired with Equinox Minerals in 2011.
Kinross Gold Corp took a $3.2 billion charge related to its Tasiast mine in Mauritania and the Chirano gold mine in Ghana, both of which were acquired in the company’s $7.1 billion takeover of Red Back Mining in 2010. It previously wrote down $2.94 billion in goodwill related to the two mines.
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