Inglorious writedowns: Gold sector’s bad bets wiping out lifetime earnings — and investor confidence – by Peter Koven (National Post – January 14, 2015)

The National Post is Canada’s second largest national paper.

TORONTO – Goldcorp Inc. could soon join an inglorious group: large gold miners that have a net loss to show for their entire history as corporate entities.

The Vancouver-based company warned this week that it expects to record an impairment charge of US$2.3 billion to US$2.7 billion on its Cerro Negro mine in Argentina. Given that Goldcorp’s retained earnings were US$2.2 billion as of Sept. 30, they may be completely wiped out in its next quarterly report.

That would not be unusual in the gold industry, where writedowns have destroyed historic profits in recent years. Barrick Gold Corp. has retained earnings of negative US$7.8 billion, while Kinross Gold Corp. is at minus US$8.5 billion. AngloGold Ashanti Ltd. has a US$4 billion historic loss, while Agnico Eagle Mines Ltd. has a slimmer loss of US$740 million.

These companies have highly profitable operations that continue to perform well in a tough gold market. But they paid the price for taking risky bets that backfired and crushed shareholder value when gold prices dropped.

“It matters when you write off more than you ever earned,” said John Tumazos, an independent analyst. “The message is these particular companies were reckless and irresponsible with their shareholders’ capital.”

The writedowns are non-cash and have no impact on day-to-day operations. However, they damaged the reputations of gold miners and drove away investors who have proven tough to woo back.

“In the U.S., it sticks out like a sore thumb [to investors] when a historic company has no retained earnings,” Mr. Tumazos said. He added that generalist investors in Canada may be more tolerant of these gold miners because mining is such a huge portion of the Canadian stock market.

For the rest of this article, click here: