Gold price plunge saddles miners with billions worth of writedowns – by Garry White and Emma Rowley (The Telegraph – July 21, 2013)

http://www.telegraph.co.uk/

The fall in the gold price is now being recognised in gold mining companies’ balance sheets – and it is hurting.

AngloGold Ashanti, the world’s third biggest gold producer, last Monday revealed itself as the latest to take a hit, predicting a writedown in the range of $2.2bn (£1.5bn) to $2.6bn (£1.7bn) on its mining assets, including its stockpiles of ore. The figure will be revealed in its financial results for the second quarter.

The company also said it would produce 4m to 4.1m ounces of gold this year, rather than the 4.1m to 4.4m ounces previously planned, in response to the fall in its product’s price.

“In light of lower and more volatile gold prices, capital expenditure is being focused on the group’s highest quality assets, while curtailing spending or suspending operations at projects that may yield lower returns,” it said. “In addition, we may seek partners for certain of our projects.”

The update hinged on the more than 30pc drop in the gold price from its peak of $1,900 (£1,243) in 2011, as the global recovery gains traction and central banks appear to signal an end to their inflationary stimulus efforts. Gold ended last week trading around $1,295 (£847) an ounce.

Gold miners are feeling the pain as a result. Last month, Barrick Gold, the world’s biggest producer, said it expects to write as much as $5.5bn (£3.6bn) off the value of a delayed mining project in Latin America.

Newcrest Mining, Australia’s biggest producer, meanwhile reported it might take a charge of as much as Australian $6bn (£3.6bn), which would be the largest in the gold sector’s history.

Harmony Gold, the South African miner, has also announced that it would write down the value of its Hidden Valley mine in Papua New Guinea.

They will be far from the last to have to make such statements, analysts warn. “It [the phenomenon] is yet to filter down to the mid-tier producers in a meaningful way ahead of reporting season,” say analysts at Liberum Capital.

“Gold and silver’s persistent weakness increases the likelihood of writedowns as the half year results and auditing season approaches and as the gold miners revalue operations, stockpiles and inventories.”

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