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Struggling giants - Barrick, Kinross, Yamana - post a sea of red as gold price bites

Gold miners have rough times ahead if quarterly results from some of the biggest names in the industry are any indication. Barrick Gold Corp (TSE:ABX) (NYSE:ABX) reported a whopping $8.7 billion in after-tax impairment charges, bringing the total of year-to-date writedowns for the Toronto-based gold miner to close to $13 billion.

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Gold miners have some rough times ahead if quarterly results from some of the biggest names in the industry are any indication. Barrick Gold Corp (TSE:ABX) (NYSE:ABX) reported a whopping $8.7 billion in after-tax impairment charges, bringing the total of year-to-date writedowns for the Toronto-based gold miner to close to $13 billion.

The most recent charge has effectively wiped out any hope of profit for the second quarter, which would have come to $663 million for earnings per share of 66 cents, compared to $821 million or 82 cents in the year ago period, instead recording a loss of $8.6 billion, corresponding to a breathtaking loss of $8.55 per share.

Shareholders had been bracing themselves, even following the revelation in June that troubled Pascua-Lama project was set to be the author of impairment to the tune of $5 billion, and indeed the write downs are attributable mainly to Pascua-Lama, which booked a $5.1 billion charge. As well, $1.3 billion in impairments were booked to smaller assets, while the company also took a hit from a $0.5 billion loss on the sale earlier in the summer of Barrick Energy, which was disclosed at the time, and $2.3 billion in goodwill impairments.

Chief among the causes of the write downs is the internal readjustments contingent on the price of gold. The troubled giant altered the gold prices on which much of its figuring was predicated to $1,300 an ounce for gold, close to the price at which the yellow metal currently trades since dropping almost 20 per cent from its 2013 high hit in January.

The miner also reported operating cash flow of $896 million and adjusted operating cash flow of $804 million.
The major reported production of 1,811 ounces for the quarter, up on the year earlier total of 1,742.

Costs of production for the metal were reported as coming in at $552 for adjusted operating costs per ounce, below the guidance figure of $575 to $615, or $919 per ounce on an all-in sustaining basis, within the current guidance of $900 to $975 per ounce.

The Canadian giant is responding to the rout in gold prices and various additional troubles with a program of cost cutting and a reduced dividend of a nickel per quarter, down from 20 cents.

President and CEO Jamie Sokalsky addressed the campaign to reduce costs in his comments released with the figures, saying of the cost cutting efforts: “Over the past year, we have taken and are continuing to take a series of steps to reduce costs as part of our disciplined capital allocation framework, which allowed us to respond quickly to the new metal price environment.

"We have reduced 2013 budgeted capital and costs by about $2.0 billion which has offset the cash flow impact of the drop in gold and copper prices that has occurred this year. We have reduced all-in sustaining cost guidance by about $100 per ounce this year from levels which are the lowest of our peers. The bulk of our expected 2013 gold production is at all-in sustaining costs well below current spot levels, and for those operations that are not generating positive cash flow, we will change mine plans, suspend, close or divest them.”

Changes to internal figuring dependent on the price of gold took a bite out of Kinross Gold Corp. (TSE:K) (NYSE:KGC) too, with the gold giant announcing in its quarterly results released Wednesday after the bell, a loss of $2.5 billion or $2.17 per share on the back of a $2.4 billion impairment charge. With the charge stripped out, adjusted net earnings came to $119.5 million, or 10 cents per share, compared with $156.8 million, or 14 cents per share, in the second quarter of 2012.

The most recent installment of write downs comes in a year that has already seen a series of impairment charges for the company, bringing the total written off for the year to $8 billion. The company took the step of cancelling the next due dividend and posited the option of doing so for the foreseeable future.

Also of note, for a company bent on cost savings, was the announcement that it would delay the decision on whether to pull the trigger on a new mill at one of its projects.

The miner reported adjusted operating cash flow of $256.7 million, or 22 cents per share, compared to $268.0 million, or 24 cents per share, a year ago. Production for the quarter came to 655,381 gold equivalent ounces compared to 632,772 ounces a year ago.

Costs of production for the quarter came in at $737 per ounce, compared to the $724 per ounce recorded a year ago, with all-in sustaining costs of $1,072 per ounce sold compared with $970 per ounce a year ago.

Yamana Gold Inc. (TSE:YRI) (NYSE:AUY), which also reported the same night as Kinross, posted a net loss of $7.9 million for a loss of a penny per basic and diluted share, with adjusted figures of $50.2 million for 7 cents per basic and diluted earnings per share.

The miner reported production of 295,545 gold equivalent ounces at all-in sustaining costs of $950 per gold equivalent ounce. Cash flows from operations came to $150.9 million.

Unlike the others, Centerra Gold (TSE:CG), which also posted late Wednesday, swung to profit for the quarter on the back of higher production at its flagship mine, which served to offset the dive taken by the yellow metal to post net income of $1.6 million, for earnings of a penny a share, well up from the loss of $48.9 million or 21 cents per share recorded a year ago.

The company reported production for the quarter of 99,426 ounces, compared to just under 52,500 ounces the year before, a surge of almost 90 per cent that did much to offset the plummet in the price of gold.

Centerra's latest results, did, however, include expenses of $2.8 million primarily made up of a charge of $2.2 million for the write-off of certain infrastructure assets at Kumtor, which could not be relocated as a result of the accelerated movement of the Central Valley Waste Dump. 

In light of the dramatic drop in gold prices, the company has also conducted reviews of its operating costs and capital expenditures and implemented measures to reduce spending, saying that it believes it can continue to generate cash at the lower gold prices reached in June. Centerra is forecasting all-in cash costs, including all operating cash costs, capital and taxes, to be between $1,120 and $1,230 per ounce for the year.

In the past two months alone, gold companies have taken $21 billion in charges. 

Shares of Barrick, Kinross and Centerra were all running higher in early deals Thursday, amid an increase in gold prices, while shares of Yamana were down were down more than 3 per cent in Toronto, to $10.40. 

Quick facts: Barrick Gold Corp.

Price: 35.21 CAD

TSX:ABX
Market: TSX
Market Cap: $62.61 billion
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