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.