Gold prices might have topped $US1,300 an ounce mark for the first time in more than three months overnight Thursday, but that rebound won’t help erase the flood of red ink from some of the world’s biggest miners which started flowing this week.
Comex gold for April delivery rose to end at $US1,300.10 an ounce in official trading in New York, and then firmed to $US1,307.50 in after hours electronic trading in the US.
That was the highest price since the first week of November. Gold prices are up 4% in the past week or so. Silver prices also firmed, rising to close at $US20.40 an ounce, the eighth daily gain in a row.
Some gold analysts reckon this a sign of gold reverting to its usual role as a hedge in uncertain times because its being driven by the combination of unease in emerging markets and fears about the impact of the Fed’s tapering.
Others reckon its just a one off blip and the price will fall back under $US1,200 an ounce later in the year. Speculation about the precise level of Chinese gold holdings and consumption (there are reports of a big shortfall), also helped push prices up this week.
Newcrest Mining (NCM) joined the list of reporting miners with weak result this morning in Australia. But what it revealed was a better than expected result, despite the 11% cut in gold reserves after using new, lower prices.
Impairments were restricted to $A47 million on a mine in Africa – the company took its lumps and losses in the 2012-13 year with those write downs and losses of more than $6 billion.
The miner beat market expectations for underlying earnings, which at $207 million, were better than the $166 million predicted by most analysts.
The result was built upon higher than expected production in the first half, and significantly lower costs.
As expected, Newcrest is not paying a dividend for the first half.
The company said a review of its resources and reserves of gold bearing ore has resulted in falls in the ounces of gold now considered to be economic.
"Group Mineral Resources and Ore Reserves are estimated to contain 150 million ounces of gold and 78 million ounces of gold respectively, a reduction of around 7% and 11% respectively compared with the previous estimate at 31 December 2012," the company told the ASX this morning.
"As at 31 December 2013, Group Ore Reserves are estimated to contain 78 million ounces of gold, 12 million tonnes of copper and 77 million ounces of silver.
"This represents a decrease of approximately 9 million ounces of gold (~11%), 0.34 million tonnes of copper (~3%) compared with the estimate at 31 December 2012. Silver Ore Reserves decreased by less than one per cent. The change in Group Ore Reserves includes estimated depletion of approximately 3 million ounces of gold and 0.1 million tonnes," the company said.
Newcrest said that its "statutory profit of A$40 million for the six months ended 31 December 2013 (corresponding prior period A$323 million) included the previously announced increase in income tax expense of A$120 million relating to the Company’s voluntary amendment of its Australian research and development claims with respect to the 2009 to 2011 financial years14 and a A$47 million impairment of exploration assets in West Africa".
"Underlying profit for the six months ended 31 December 2013 was A$207 million (corresponding prior period A$323 million). The benefit of a 26% increase in gold sales volume was largely offset by a 13% lower average realised gold price compared to the corresponding prior period.
"EBITDA of A$731 million and EBIT of A$404 million for the current period represent EBITDA and EBIT margins of 36% and 20% respectively," Newcrest told the market.
Newcrest’s interim results were actually better than the market forecast (but remember this company has form). But it was certainly a better effort than many of its peers in Canada, the gold mining capital of the world insofar as the number and size of producers are concerned
Whatever the reason for the rise in gold prices in the past six weeks, it’s not impacting the thinking of some of the world’s major miners, especially those in Canada where they have racked up more big losses by taking an axe to reserves and production plans.
Early estimates suggest that Canada’s biggest gold miners wrote off a massive $US17 billion last year, mostly in impairments, led by Barrick Gold Corp, which had another whack at asset value sin the 4th quarter.
Barrick, the world’s biggest miner, slashed its gold reserves by a quarter and took $US2.82-billion in impairment charges on mines, including on its troubled Pascua Lama project in the Andes.
The charges drove Barrick to a fourth-quarter loss of $US2.83-billion which was smaller than the $US3-billion loss in the final quarter of 2012 when the miner took a massive write down related to its ill-fated acquisition of copper group Equinox Minerals Ltd.
For 2013 as a whole, Barrick had total losses of $US10.37 billion.
Barrick has stopped construction on Pascua Lama, which had been plagued by huge cost overruns and delays. That resulted in a $US896-million charge. Barrick also cut the value of expensive assets, leading to charges on three mines in Argentina, Saudi Arabia, Papua New Guinea (Pogera) and its Australia Pacific gold operations.
And Barrick said it would produce less gold this year – between 6 to 6.5 million ounces of gold this year, compared with the 7.16 million produced last year and markedly lower than the 9 million ounces the company once aimed to produce.
The company also slashed its stockpile of unmined gold by 26% to 104 million ounces from 140 million last year after using a very low gold price assumption to calculate reserves. The smaller pile of gold in the ground represents about 16 years of production at this year’s forecast rate of 6.5 million ounces. The new reserve estimate is based on a $US1,100 per ounce price for gold compared with $U1,500 per ounce used in the earlier estimate.
The Toronto-based miner remains the world’s largest gold producer. US-based Newmont Mining Corp is Number 2, with production of 5 million ounces last year.
Fellow Canadian gold producers Kinross Gold Corp. and Agnico Eagle Mines also took impairment charges on their mines and reduced their reserves.
Kinross Gold Corp. took an impairment charge on a mine in Chile and slashed its gold reserves by 33%, partly because it decided to use a new method of calculating unmined bullion.
Kinross had already set a very low cut off world gold price of $US1,200 an ounce, and had not been expected to cut its reserves estimate.
But in a first for the industry, Kinross has expanded its reserves price to include other costs involved in mining the metal. On top of its normal operating costs, Kinross added expenses related to mine waste management, sustaining capital and other factors in the calculation.
This is an attempt to provide investors with a more accurate way of determining profitability.
Kinross’s new methodology and decision to kill its Fruta del Norte project in Ecuador will cut the company’s reserves to 39.7 million ounces from 59.6 million ounces the previous year.
The company lost $US740-million which includes an after-tax, non-cash impairment charge of $US544.8-million related to a mine in Chile.
That is smaller than the previous year’s loss of $2.98-billion when Kinross wrote down part of Tasiast, which the miner acquired when it bought Red Back Mining when gold prices were much higher.
Kinross says it expects to produce between 2.5 million and 2.7 million ounces of gold equivalent ounces in 2014. That compares with 2.6 million ounces produced in 2013.
Kinross reported a full year loss of just over $US3 billion, including the impairments, compared with $US2.54 billion for 2012. Excluding the impairments, profit fell to $US321 million last year from $US886 million in 2012.
Goldcorp Inc. saw a fourth-quarter loss as it also took impairment charges on its mines and slashed bullion reserves because of the price slump.
It reported more than $US1-billion in charges, tax-related losses and other items in a fourth-quarter loss of $US1.1-billion. That compared to a profit of $US504-million in the final quarter of 2012.
The company lost a total of $US2.71 billion for all of 2013, compared to the profit of $US1.75 billion in 2012.
Before the impairment and other losses and charges, operating income fell to $US1.06 milliion from more than $US2.1 billion in 2012, a good indication of the damage the gold price slide did to the company (and its peers) in 2013.
But unlike Barrick, Goldcorp forecast production could increase as much as 18% to 3.15 million ounces.
And Agnico-Eagle reported a net loss of $US453.3 million for the three months ended December compared with a profit of $82.8 million for the same quarter in 2012.
The company incurred impairment losses of more than $US400 million.
Including the impairments, the company lost $US406 million for 2013, against a profit of $US311 million in 2012. Excluding the impairment, company made a small profit last year.
