Now back to the gold miners’ value-building reform movement
What began as a whimper of apologetic rhetoric from embattled CEOs has swiftly transformed into an observable correction of the major mistakes that plagued their past performance. The most glaring shift can be found in the wholesale reductions in previously budgeted expenditures of growth capital. Barrick Gold just slashed $4 billion in spending from its plans and announced that, “In today’s challenging environment, Barrick has no plans to build any new mines.” The world’s largest producer of the metal now seeks only an 8% total increase in production over the next four years, and will shelve any intention of expanding beyond 8 million ounces of annual production .
Barrick also joined the crowd of major miners slashing valuations for recently acquired assets to reflect broadly diminished expectations for their economic performance. In Barrick’s case, the offending asset in focus is the Lumwana copper mine at the center of the company’s ill-fated $7.7 billion acquisition in 2011. Higher projected costs at Lumwana — where “fully allocated” costs for 2013 are expected to reach an alarming range between $3.20 and $3.60 per pound — prompted a $3 billion writedown within total impairments during the fourth quarter of $4.2 billion. Those non-cash impairments drove Barrick’s dismal $3.06 billion loss for the fourth quarter, but adjusted profit managed to beat analyst estimates with profit of $1.11 for each of the company’s 1 billion shares outstanding .
Smaller rival Kinross Gold Corporation (USA) (NYSE:KGC) knows a thing or two about conceding embarrassing reductions to the value of acquired assets. With a further $3.09 billion impairment recorded for the fourth quarter on the company’s Tasiast project in Mauritania — atop a prior impairment logged one year ago on the same asset, Kinross has now ceded $5.58 billion (or 79%) of the $7.1 billion shelled out for the gold industry’s most notoriously misguided acquisition. Now under new leadership, Kinross has finally begun to chart a more attractive road forward .
Gold Fields Limited (ADR) (NYSE:GFI) chose a different path to reform that’s better suited to the specific challenges presented by its maturing assets in South Africa. The company has spun out those assets into a separate listing called Sibanye Gold, which will substantially ease the company’s battle with elevated all-in costs of production as it unlocks some of the meaningful growth potential of its existing mine portfolio.
Almost in unison, this battered industry has finally sprung into action to reverse the tide of woeful failures to capitalize on the elevated price environment for gold. Broadly speaking, I strongly believe that we’re now hammering the final nails into the coffin of a bizarre cyclical bear market for gold stocks that has occurred straight through the first decade of this ongoing secular bull market for gold. When this tide turns, and both gold and gold equities enter bull-market breakout mode in unison, the results could be something to behold. Rather than chasing these stocks once the momentum rushes in, I encourage Fools to take advantage of the profoundly negative sentiment still in force here to get in on the ground floor.
The article Announcing the End of the Bear Market for Gold Stocks originally appeared on Fool.com and is written by Christopher Barker.
Fool contributor Christopher Barker owns shares of Goldcorp (USA) and Sabina Gold & Silver. The Motley Fool has no position in any of the stocks mentioned.
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