Top 10 gold miners: Shaky earnings and more billion dollar write-downs – by Lawrence Williams (Mineweb.com – July 26, 2013)

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As the gold majors begin issuing their latest quarterly statements it is becoming apparent how shaky earnings are at current gold prices regardless of the massive writedowns being taken.

LONDON (MINEWEB) – Yesterday we saw World No. 4 gold miner Goldcorp writing $1.96 billion off its asset values during Q2 and World No. 2 Newmont $1.8 billion. This follows on notice of huge writedowns for the year of around $6 billion at Australia’s Newcrest, the World’s No. 6, and a statement from World No. 3, AngloGold Ashanti, that it would be writing its assets down by between $2.2 and 2.6 billion. The other gold majors yet to report will also likely be taking huge writedowns which will significantly impact June quarter financials.

But it’s not the writedowns which are necessarily the most significant factors to be taken into consideration by shareholders and the gold market itself. It is the actual decline in operating profits, and the all-in sustaining cost of production which should be a primary focus. Write-downs are just book adjustments on asset valuations, but the underlying financial health of the companies, and what they can afford to pay out in dividends, depends on ongoing profitability virtually regardless of the kinds of book financial adjustments that are being seen.

Of those companies which have reported their June quarter financials so far, Goldcorp remains barely profitable, while Newmont and Agnico Eagle (World No. 10) are already in the lossmaking bracket.

One suspects the big South African gold miners, AngloGold and Sibanye (the Gold Fields spinoff) will also be comfortably in the red given their higher cost base, while most of the other top global gold miners will be reporting pretty disastrous profit or loss figures for the latest quarter.

We did foreshadow this here on Mineweb. see Top 10 gold miners face 2013 earnings nightmare

It is apparent, though, that the miners are all taking steps to correct the situation – long overdue one might say, but it is always difficult to make cuts when things seem to be going relatively well, which they were to an extent up to around a year ago. The companies are cutting jobs, reviewing and deferring capital expenditure programmes, cutting exploration – although the deferrals will obviously affect production projections in the years ahead.

Uneconomic mines are being shut down, or perhaps being sold to smaller companies with lower overheads and the wherewithal perhaps to make a go of them free of bloated corporate structures. Dividends will be cut – a company can only go on so long paying out dividends when making underlying losses and thus effectively having to borrow, or sell properties, to make payouts.

The other thing to keep an eye on are what the companies are now beginning to report as all-in sustaining costs. This will include things like exploration expenditures and annual capital costs not only to maintain current operations, but also to develop new ones to replace depleting assets. These all-in costs are illuminating to a shareholder base fed operating or cash cost figures making companies appear to be highly profitable, but yet then reporting overall quarterly earnings which fell far short of expectations.

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