Newcrest Mining, Australia’s biggest gold miner, last week announced it would write down the value of mines in Australia, Papua New Guinea and Côte d’Ivoire by up to A$6bn which is about a quarter of the company’s book value on December 31. Capital investment will be cut by one-third and exploration spending by almost half next year, Newcrest said. This action reflects the attempts by many global mining companies to rein in costs after years of ramping up production.
A $200 plunge in prices within two days in April, which led to its steepest drop in a generation spread concerns that gold’s 12-year rush may be over.
For the last month the price has faltered at around $1,400 an ounce, which could force more mining companies to write down the value of their reserves which will erode the value of projects, some of which clearly may no longer be profitable. However attempts now to cut back on spending are complicated by the long-term investment horizons required by some flagship projects
Gold miners problems were compounded by a report by PwC this week saying gold producers among the world’s top 40 mining companies had lost $58bn in market capitalisation during the first four months of the year.
Gold mining companies have already been struggling recently because of rising costs due to higher wages for workers and fuel prices.
Newcrest claims it will reduce capital spending for 2014 from A$1.5bn to A$1bn and cut exploration expenditure from A$160m to A$85m. Its shares fell A$1.01 to A$12.35. It’s public message however remains upbeat ;
“Having completed its two major project expansions . . . and with future capital expenditure declining, Newcrest’s balance sheet remains strong and is expected to improve,” the Melbourne-based company states