Precious Metals

The chickens are coming home to roost for some major gold companies that are having to take significant hits on asset valuations.

This week saw more red ink spilt among major gold miners as Barrick Gold (NYSE:ABX,TSX:ABX), Newmont Mining (NYSE:NEM), Kinross Gold (NYSE:KGC,TSX:K) and Polymetal International (LSE:POLY) all announced writedowns.

Following up on last week’s statement by Goldcorp (NYSE:GG,TSX:G) of a $1.96-billion writedown on the value of its Peñasquito mine in Mexico, US-based Newmont announced a second-quarter net loss of $2 billion. Mineweb reported that the loss was after a $1.8-billion non-cash charge “for impairments and revaluation,” particularly at Newmont’s Boddington and Tanami mines in Australia.

Worse hit was Kinross, which said on Thursday that it would write down $2.29 billion in assets and take a $720-million charge due to its decision to suspend Fruta del Norte in Ecuador after refusing to pay a 70-percent windfall profits tax demanded by the Ecuadorian government. Kinross also deferred a decision on expanding the mill at its Tasiast mine in Mauritania and suspended its 8-cent-per-share dividend. The news hammered Kinross’ stock price, which fell as low as $5.01 on Thursday in New York before recovering to $5.12 at the close.

Barrick Gold had more bad news for shareholders after telling them a month ago that it would delay its Pascu Lama project on the border of Chile and Argentina, resulting in a writedown of up to $5.5 billion. On Thursday, the Toronto-based company reported an even greater loss of $8.6 billion in the second quarter. The impairment charges include $5.1 billion related to Pascua Lama, $2.3 billion in good will impairments, half a billion related to the sale of Barrick Energy and $1.3 billion in other asset impairment charges. In response, Barrick said it will cut its quarterly dividend to 5 cents a share and continue to slash its workforce and capital spending. MINING.com noted that Barrick so far this year has written off $13 billion and deferred between $1.5 billion and $1.8 billion in planned expenditures.

Last in the quartet, Russian precious metals miner Polymetal said Monday it will write down its asset values by up to $340 million due to lower commodities prices. The non-cash impairment charge mostly represents good will and low-grade ore stockpiles, the company stated.

Yamana Gold (NYSE:AUY,TSX:YRI), meanwhile, has escaped any writedows despite reporting a $7.9-million loss in Q2. Yamana said on Wednesday that it will focus on cutting $115 million from its cost structure, including eliminating jobs and changing supplier contracts.

More company news

African Barrick Gold (LSE:ABG) is being sued in the UK over the deaths and injuries of Tanzanian villagers, including one instance where five men were shot and killed at the North Mara gold mine in 2011. Bloomberg reported that at least 12 villagers have filed a lawsuit accusing the company of using excessive force to protect the mine.

Higher gold production at Centerra Gold’s (TSX:CG) Kumtor mine in Kyrgyzstan helped offset a weaker gold price and boosted the company’s second-quarter profits. Reuters reported that Centerra managed a net income of $1.6 million compared to a net loss of $48.9 million in Q2 2012. The company also raised its annual production guidance to 615,000 to 675,000 ounces compared to an earlier 605,000 to 660,000 — a significant increase over the 387,076 ounces poured in 2012.

Junior company news

Richmont Mines (TSX:RIC) said this week that it has completed the bulk-sampling phase for its Monique open-pit gold project in Quebec and will proceed to commercial production in October. The 8,494-tonne sample generated 717 ounces of gold with a head grade of 2.76 grams per tonne (g/t). Proven and probable reserves are pegged at 485,737 tonnes, with 35,698 ounces of contained gold graded 2.29 g/t. Richmont plans to produce 30,000 ounces over a period of 19 months at a cash cost of C$904 per ounce.

Klondex Mines (TSX:KDX) enjoyed a run on its stock price this week after announcing that an underground drilling program targeting the Joyce and Vonnie structures yielded 1,302 tonnes of mineralization at an average grade of 119.8 g/t. The five-day chart on Klondex shows a gain of 10.85 percent; it was up 2.88 percent at the close of trading Thursday on the Toronto main board. Klondex is developing the Fire Creek gold deposit in North-Central Nevada.

Colombian Mines (TSXV:CMJ) today started drilling its Yarumalito porphyry gold project. The 3,500- to 4,000-meter drill program is being managed and funded by Teck Resources (NYSE:TCK,TSX:TCK.B), which has an option agreement with Colombian Mines valued at $15.5 million. Under the agreement, Teck may earn up to 70 percent of the project by spending at least $10 million on exploration and making combined cash payments and private placements of $5.5 million.

Anticlimactic week for gold price

The gold price traded in a relatively thin band this week — about $24 — despite high volatility predicted around Wednesday’s statement from the US Federal Reserve regarding the future of its monetary stimulus program, known as quantitative easing. The week started off well for gold, with December gold futures and the spot price supported on Monday by a weak US dollar. On Tuesday, however, the gold market turned bearish on a higher dollar and lower crude oil prices. Spot gold was marginally lower by $2.20, at $1,325.50, while gold futures slipped $5, to $1,324.60.

The highly anticipated meeting of the Federal Open Market Committee concluded on Wednesday with no clear direction on QE, resulting in a jumpy day for gold. MINING.com reported that the yellow metal was initially sent tumbling close to the $1,300 level before making a big move up to $1,340, the intra-day high. At the end of Wednesday, gold finished around $16 lower, with the spot price valued at $1,310.50. The downward trend continued on Thursday, with trading light and choppy ahead of a key US employment report due out on Friday. Gold for December delivery was last quoted at $1,311.20 in New York, while spot gold finished at $1,308.90.

 

Securities Disclosure: I, Andrew Topf, own stock in Goldcorp. 

Related reading:

Choppy Week for Gold: Goldcorp Writes Down $1.9 Billion

More Pain for Barrick in Chile

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