Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Gold miners shares were among the worst hit after Thursday’s comments by Ben Bernanke, the US Federal Reserve chairman, implied the Fed’s ultra-loose monetary policy, which has supported global liquidity and with it the price of gold, may come to an end this year.
From the casualties, Australia’s Newcrest Mining (ASX:NCM) avoided much of the carnage in in New York as gold fell, yet took a major beating announcing it will write down the value of its mines by as much $5.5 billion.
With the move, the Melbourne-based company will lead the largest one-time charge in gold mining history and, as experts agree, will also send a strong and painful message to its competitors.
“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, told Bloomberg. “It’s just a question of timing, and who had the largest exposures.”
Analysts quoted by FT.com (subs. required) said the lasting weakness and volatility of gold have amplified the likelihood of more writedowns to be announced in coming weeks, when miners start posting half-year results.
“It could be an extremely important and interesting half-year results season for resetting both production expectations and carrying values and we’d not be surprised to see a few more CEO casualties along the way,” experts from Liberum in London told FT.com.
Even before the gold price debacle began this year, bullion producers were facing challenges. As a PwC report shows, from the 40 main mining groups by market capitalization, four of the five that lost most value last year were gold producers – Barrick Gold (TSX:ABX), AngloGold Ashanti (NYSE:AU), Goldcorp (TSX:G), and Newmont Mining (NYSE:NEM).
Newcrest’s shares have lost almost 30% of their value since the miner announced said it expected to book writedowns on mines in Papua New Guinea, Ivory Coast and Australia in its full-year results.
Gold prices have fallen from roughly $1,700 per ounce to less than $1,300 in the past six months. But experts say the signs of an impending fall were there before that and add the same factors are likely to continue to push gold lower.
SEE ALSO: Forget the Fed: Five more reasons the gold price has much further to fall
Image by Captain Kimo
