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.
Barrick Gold Corp. (ABX), the biggest producer, Newmont Mining Corp. (NEM) and Gold Fields Ltd (GFI). may be next, according to Jefferies International Ltd. 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 $1,000 an ounce by 2015. The metal traded as low as $1,277.20 in New York today.
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.
A Bloomberg Index (BBRSRGLD) 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. 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.
Gold declined 23 percent in 2013, sliding into a bear market in April, as the MSCI All-Country World Index of equities climbed 3.7 percent, and the dollar gained 3.5 percent 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 percent, after Fed Chairman Ben S. Bernanke said asset purchases may be reduced later this year as the economy strengthens. Holdings (.GLDTONS) in exchange-traded products fell to the lowest level in more than two years as some investors lost faith in the metal as a store of value amid low inflation and a global equity rally.
Newcrest (NCM) has plunged 29 percent since the company said it expects to book writedowns on mines in Papua New Guinea, Ivory Coast and Australia in its full-year results. The disclosure of the expected charge on June 7 is facing scrutiny from regulators over possible selective briefing of analysts.
The Melbourne-based company, which expects to write down its assets by about 25 percent of their book value as of Dec. 31, has seen its market value fall A$3.8 billion this month to A$7.3 billion on June 24, less than the A$9.7 billion it paid to acquire Lihir Gold Ltd. in 2010.
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