Gold miners braced for cuts in reserves after plunge in prices | Diigo Groups

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TANA Goldfields UK

• Gold miners braced for cuts in reserves after
  plunge in prices

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Gold miners braced for cuts in reserves after
plunge in prices

• The gold mining sector is braced for asset write
  downs and a fall in the amount of reserves in the
  ground after the precipitous drop in the price of
  the metal this year.
• Some of the worlds largest gold miners face
  having to tell investors that their growth has
  gone into reverse because the falling price has
  made it uneconomic to mine some of the areas
  previously classed as reserves.

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Gold miners braced for cuts in reserves after
plunge in prices

• Miners reserves are vital to their prospects and
  valuations, since companies would quickly shrink
  if they did not replace what they dug from the
  ground each year. Rising price expectations have
  until now helped gold miners be more optimistic
  about their reserves and to include ounces that
  they would previously not have been able to mine
  profitably.

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Gold miners braced for cuts in reserves after
plunge in prices

• Gold has been going up for 12 of the last 13
  years and reserves have gone up with the price.
  This 2014 is definitely the year we will see
  reserves falling across much of the sector, said
  Jorge Beristain, an analyst with Deutsche Bank.
  Reserve calculations have been based on a series
  of suppositions that in the present environment
  are no longer tenable.

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Gold miners braced for cuts in reserves after
plunge in prices

• Gold miners including Barrick Gold and Newmont
  Mining, the worlds largest by ounces of annual
  production, have had a difficult year in 2013
  because of the effect of the gold price on some
  of their most important projects.

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Gold miners braced for cuts in reserves after
plunge in prices

• Miners usually update their reserve statements
  early each year, and do not all assume the same
  price. Barricks last reserve statement assumed a
  gold price of 1,500 per ounce for most of its
  140m oz of reserves, while Newmont based its
  statements on a 1,400/oz price.

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Gold miners braced for cuts in reserves after
plunge in prices

• Gold started the year at about 1,600/oz but fell
  sharply in April and has been hovering at about
  1,200/oz in recent days.
• Newmont, whose 99m oz of reserves are the
  industrys second-largest, said early this year
  that a 100 fall in the gold price would cut
  reserves by 7.6 per cent. Barrick has previously
  said a 300/oz change in the assumed gold price
  would see its reserves fall less than 10 per
  cent, with a lower impact at its larger, more
  important mines.

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Gold miners braced for cuts in reserves after
plunge in prices

• I would guess some miners might have to use
  1,100 as the price for their reserves, says a
  senior executive at one UK-listed company. Or
  they might take the view that the gold market is
  in a very strange place in terms of volatile
  behaviour at the moment, which they might use to
  justify using a higher price.

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Gold miners braced for cuts in reserves after
plunge in prices

• Some miners use lower gold prices in reserve
  calculations. Kinross Gold, a large Canadian
  miner, based its latest reserves on a 1,200
  price.
• Barrick and a number of other gold miners
  including Newcrest Mining, Australias largest,
  have already made billions of dollars of
  writedowns during 2013 as the gold price fell.

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Gold miners braced for cuts in reserves after
plunge in prices

• However, some miners face having to acknowledge
  further impairments connected to goodwill held on
  their balance sheets or the carrying value of
  projects.
• The writedowns of the past quarters in 2013 have
  tended to be connected with the costs of
  projects. What we are talking about now is cuts
  to the value of companies land holdings and the
  gold that they hope is in the ground, Mr
  Beristain said.

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Gold miners braced for cuts in reserves after
plunge in prices

• Silver miners also face writedowns and reserve
  cuts because their price assumptions are well
  above current spot prices, he added.