This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

The Deal: Goldbugs Return Despite Miners' Troubles

NEW YORK ( The Deal) -- Gold prices may have fallen about 26% since January, but for the companies that mine the precious metal it has rarely been more costly.

Australia's largest gold producer, Newcrest Mining, on Monday, Aug. 12, booked A$6.23 billion ($5.71 billion) in impairments and asset write-downs. The news follows a week after larger rival Barrick Gold (ABX) of Toronto slashed $8.7 billion off the value of its assets.

The huge losses underline the wider woes that are hurting everyone from the largest gold producers, many of which own mines that are now loss making, to gold prospecting companies, which are bleeding cash waiting for absent buyers.

The extent and speed of the fall in the value of gold mining assets was highlighted by Newcrest's Monday announcement, which included a A$3.4 billion charge linked to its Lihir Gold operation in Papua New Guinea. The operation was bought in 2010 for A$9.2 billion.

The losses are grim news for the gold mining sector and for those hoping for a return to dealmaking that is central to the progression of gold projects from exploration to production. Those deals tend to trickle down from the top. Newcrest and Barrick, which along with Goldcorp (GG) and Newmont Mining Corp. (NEM) make up the big four of gold mining, are in no mood to buy.

Barrick said last week it will close or reduce production at 12 of its 27 mines to focus on profitable operations. Newcrest said it will cut costs by "removing higher cost ounces from the production profile and accelerating reductions in operating costs, corporate costs and capital expenditure."

The pressure heaped on balance sheets by the write-downs was illustrated by Newcrest's gearing, which stood at 29% following its write-downs and a resultant record loss of A$5.8 billion announced on Monday. The company said it was comfortable with its debt but reiterated that its long-term target remains a gearing level of 15%. High gearing is when a company has a high level of borrowing compared to its share price. Moody's Investors Service last month downgraded the mining company to Baa3, one step above junk status, and warned that it could be cut further.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,265.99 +109.14 0.64%
S&P 500 2,011.20 +9.63 0.48%
NASDAQ 4,588.6910 +26.5020 0.58%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs