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After years of costly mistakes, the new chief executives of Barrick Gold Corp. and Kinross Gold Corp. have ushered in an era of austerity in the precious metal sector.
The results of their labour will be on display when Canadian mining companies report fourth-quarter earnings this week. Investors are already expecting gold producers to reduce their bullion reserves, write down more assets and record lower profits.
But the bad news may soon be ending with companies adjusting to the lower gold price. “The worst is over,” said John Ing, president of investment firm Maison Placements Canada Inc. in Toronto. That doesn’t mean the picture will be pretty this quarter.
Barrick CEO Jamie Sokalsky told investors that the company will use a $1,100 (U.S.) price to calculate its unmined gold. That is down sharply from the $1,500 price assumption used to calculate last year’s reserves.
That could slash more than 10 per cent from the miner’s stockpile of 140 million ounces of gold in the ground, which is equivalent to 20 years of production at the current rate of seven million ounces per year.
Toronto-based Barrick will also record another writedown on its troubled Pascua Lama mine in the Andes and likely take additional impairment charges on mines that have become too expensive to run.
Agnico Eagle Mines Ltd. of Toronto is expected to cut its reserves after using a $1,490 price assumption for its mines that have a shorter life.
Vancouver-based Goldcorp Inc., too, is also expected to cut its reserves.
Kinross may record another write down on one of its mines. And fellow Toronto-based miner Iamgold Corp. has said it will produce less gold at higher costs.
But investors have been warned and now they want to ensure that companies follow through on plans to bolster their financial position.
“We’re going to be looking for material improvement on the cost side,” said Rick Rule, chairman of Sprott U.S. Holdings, who has spent years investing in natural resources.
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