Newcrest Mining Limited (OTCMKTS:NCMGY) (ASX: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.
Australia's largest gold producer by market value said it was reviewing the carrying value of its assets after the steep price drop, at a time when costs have also risen and the domestic currency was trading near historic highs. It said it expected to report impairments of between A$5 billion and A$6 billion on the value of its assets.
The gold price has dropped around 16 percent this year as investors chased higher-yielding assets. The market has plunged by more than a quarter from its record high in the second half of 2011.
"While this impairment will have no impact on cash flow, the reduction in the asset book values will have a material impact on the 2013 financial year statutory accounts," Newcrest said in a statement Friday.
The company also forecast a rise in its debt-to-equity ratio, saying the gold-price slump alone would likely push its gearing level to 21 percent by the end of June. An asset write-down of the level indicated would lift it closer to 28 to 30 percent, it said.
Pain for Competitors
Barrick Gold Corporation (NYSE:ABX) (TSE:ABX), the biggest producer, Newmont Mining Corp (NYSE:NEM) and Gold Fields Limited (NYSE:GFI) may be next, according to Jefferies International Ltd. Nouriel Roubini, professor of economics and international business at New York University, 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.
A Bloomberg Index of 14 large gold miners, including Barrick Gold Corporation (NYSE:ABX) (TSE:ABX) 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, according to data compiled by Bloomberg.
Brokers View On Newcrest Mining
Gold companies that spent $195 billion on acquisitions in a decade-long price boom are at risk of taking write-downs like Newcrest Mining Limited (OTCMKTS:NCMGY) (ASX:NCM)’s. Producers face more stresses with brokers from Goldman Sachs Group Inc (NYSE:GS) to Citigroup Inc (NYSE:C) 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.”