Barrick Gold Corporation (USA) (NYSE:ABX), the world’s largest gold miner by output, has delayed the opening of its newest mine as the price of gold continues to fall and the future looks uncertain. The company has delayed the mine’s construction for at least 18 months, when it hopes that the volatile price of gold will have stabilized, and the outlook for the precious metal will be clearer.
The Pascua-Lama mine, high in the Andes, on the border between Chile and Argentina, is one of the largest prospective mines in the world with around 18 million ounces of proven gold reserves. In addition, it is expected that the mine contains 676 million ounces of silver.
Production was expected to average around 825,000 ounces of gold and 35 million ounces of silver annually for the first five years. Furthermore, the mine was expected to be low-cost with an average all-in production cost per ounce in the low hundreds for the first few years.
Barrick Gold Corporation (USA) (NYSE:ABX) has also admitted that it will have to take a $5.5 billion write-down on the mine due to rising costs, production delays, and the falling price of gold. Elsewhere, the company has cut 30% of its corporate staff in an attempt to reduce costs.
Surprisingly, Pascua-Lama’s development has been stalled even though the mine was forecast to be one of Barrick Gold Corporation (USA) (NYSE:ABX)’s lowest all-in-cost-per-ounce mines, which does not bode well for higher cost mines; especially, Barrick Gold Corporation (USA) (NYSE:ABX)’s mines in the Australia Pacific region.
Barrick Gold Corporation (USA) (NYSE:ABX)’s all-in cost for production per ounce of gold from the mines in the Australia Pacific region, is between $1,200-$1,300. That means the company is losing money on gold mined in this region.
It’s not just Barrick
Newmont Mining Corp (NYSE:NEM) is also suffering and 4.8% of the company’s production is already cash-flow negative. With the all-in cost of mining an ounce of gold from its Tanami mine averaging $1,247, the company is losing around $50 per ounce while gold trades around the $1,200 level.
Meanwhile, Newcrest Mining (NASDAQOTH:NCMGY) has be forced to write down the value of its mines by as much as $5.5 billion, a write-down twined with Barrick for the largest mine write-down in gold-mining history. Over the past year, according to data from Bloomberg, gold miners have written down around $16 billion in assets as the price of gold plummets.
And more write-downs will be on the way as gold miners are still using high prices to calculate the value of their reserves. Barrick uses a price of $1,500 per ounce to value its mines, Newcrest uses $1,250 and Newmont Mining Corp (NYSE:NEM) uses $1,400 per ounce.
There is even more pain to come
Recent earnings estimates for each of the three miners above have not yet been adjusted to reflect the write-downs or even the recent decline in the price of gold. Barrick Gold Corporation (USA) (NYSE:ABX) is expected to earn $3.16 per share for 2013, according to current estimates, although this is down 40% from the $5.30 predicted at the beginning of the year and does not reflect the recent Pascua-Lama write-down or the recent gold price collapse.
Furthermore, Newcrest’s estimates for 2013 have been slashed 50% since the beginning of the year, and that doesn’t reflect further write-downs or a lower price of gold. Finally, Newmont Mining Corp (NYSE:NEM) has cut estimates by 35%. And like the others that doesn’t take into account any further write-downs. In fact, the company is not expected to grow earnings for the next two years.
Foolish summary
All in all gold miners have not had it easy during the last few months and the whole situation is about to get worse. And that’s because the value of mines will continue to be written down and growth estimates will continue to dry up to reflect falling gold prices. Moreover, with a crippling asset write-down forecast ahead, it’s possible, many miners may lose money over the next few quarters. Take a look for yourself, see if you agree.
The article More Trouble is about to Hit Gold Miners originally appeared on Fool.com and is written by Rupert Hargreaves.
Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Rupert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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