Barrick Gold Corporation (NYSE:ABX) will be unable to pare 2013 impairment charges
Its old news, but its gold news. Most gold mining companies have written-down much more assets at the Q2-end than what analysts had projected. What is even more unfortunate is that if the gold market does not begin climbing upwards, many more write-downs are going to be announced at a time when companies will start preparing their reserve and resource statements for their annual reports.
The reserve math
The reserves are always positioned with the proven economic viability of a company. To prove that they are economically viable, gold companies have to assume a certain gold price for which they make the reserve-calculations. Theoretically, gold price-assumptions for these reserve calculations will generally be very much the same across companies. Barrick Gold Corporation (NYSE:ABX) computed its latest reserve-statement and assumed a $1,500/ounce gold price.
The adjustment factor
It seems like a large number of gold companies including Barrick Gold Corporation (NYSE:ABX) will have to make an adjustment to their gold price-assumptions to maintain more realistic levels in the current year. This will automatically result in lower gold reserves as some of the ounces from the 2012 calculations will not be economical any longer. In addition to this, there will also be a reduction in exploration expenditure.
This announcement has already been made by all gold companies. Ongoing production will also result in mine depletion and there is hardly any way in which the companies will be able to maintain reserve levels. Amongst peers, ABX has based its latest reserve statement on the very highest gold price-assumptions.
Paring will take place
A significant reduction in reserves will also eventually find a place in the company’s financial reports as impairment charges. Barrick might just be the leader on this front again at that point of time. That is exactly what the company had done on the Q2. It wiped-out a staggering $8.7B from its books.