Newmont Mining Corp (NYSE:NEM) is trying not to undermine the sheen of gold
At the end of last week, Newmont Mining Corp (NYSE:NEM) topped the best stocks In recent months, it has taken as much a beating as other gold miners have, resulting from the dipping prices of gold. What are at risk now are their current high-cost production and all their future projects.
NEM has already written the complete value of its HopeBay mine in Canada. The speculation is that there are several other writedowns in the offing. At the moment, the yellow metal presents an excellent buying-opportunity and analysts suggest that this entire sector needs to be dug deeper into. Newmont Mining Corp (NYSE:NEM)’s strength is evident in various areas such as a pretty solid financial-position, reasonable debt and valuation levels by most measures.
However, the company has some weaknesses such as a bleak operating-cash flow which is definitely a disappointing performance in its stock. This has additionally been bruised by the dropping gold price. Analysts say that numerous gold mining companies are left with no option but to write-down the value of their assets, most of which had been acquired over the last ten years. The assets that had been bought at peak-valuations are the ones that are particularly liable to be written-down.
Now gold mining companies are in rectify-mode. They are cost-cutting in a big way- executive pay-packages are being slashed, bonuses are as good as scrapped, dividends are heading north and shareholders are now a little at ease. However, the one major factor- the price of gold has been dragging them down and it seems like it will hit dividend pay-outs.
What is a write-down?
Write-downs typically reflect in the income-statement of a company as an “above-the-line expense”, thus reducing the net income. However, this is not a bad thing in every single case. This is because a write-down is no more than paper loss. Since it reduces the company’s net income, it also eases the tax-burden on a firm. Most companies tend to attempt to schedule the larger write-downs very close to each other. This helps them, figuratively “take a bath” in one particular reporting-period and they hope to recover quickly in the next one.