Newmont announces $2 billion in losses and gold prices drop 25% second quarter
Newmont Mining (NYSE: NEM), one of the largest gold producers in the world, has released a rather unpleasant set of second quarter results last Thursday showing losses of USD$ 1.8 billion. This led to a net loss of $ 2 billion or $ 4.06 per share for the three months to the end of June. Some USD$ 272 million of losses could be blamed on stockpiles depreciation; The collapse of the gold price in the second quarter forced Newmont to amortize USD 2.26 billion, a clear step back considering that last year made a net profit of USD$ 279 million in the same quarter. In the end, after depreciation costs and impairment losses, Newmont lost USD$ 2.019 billion.
Newmont said that it has absorbed the bulk of the losses and already started to “make some progress” in cost cutting to regain some efficiency; it will continue to seek ‘efficiencies’ by cutting a third of its workforce at its headquarters and regional offices. Newmont said the bulk of the loss, forcing amortization, (USD$ 1.7 billion), resulted from property, plant, mine development and other long-term assets at the Boddington and Tanami mines in Australia. Gold production was slightly less than the same period in 2012: 1.167 million ounces vs. 1.213 million ounces while copper production was 34 million pounds, well below the 37 million pounds a year earlier. Moreover, for the first half of 2013, Newmont produced 2.333 million ounces of gold as compared to 2.489 million ounces in the same period last year.
The size of Newmont’s loss may at first glance appear to be a result of the price of gold’s rollercoaster ride; however, the losses were caused by far more by internal factors. The price of gold has moved up since the end of June, reaching a high last week. The fall in prices could be blamed on concerns that the US Federal Reserve would continue to pursue a strong US Dollar policy. Now, the markets may be concerned once again that a lower dollar might spur inflation and encourage investors to acquiring more commodities such as gold again. Yet, a look at the gold chart for the first half of the year does certainly resemble a disaster.
In the second quarter of the price per ounce dropped 25%, the largest quarterly decline in nine decades. This would have had an impact on gold producers Newmont was not the only one to announce large losses. Just three days earlier, Canadian Gold Corp. announced a loss of $ 1.93 billion for the second quarter post. Therefore, gold producers have had to pay a high price for the depreciation resulting from the gold price rollercoaster of the first half of 2013; the test will be But Barrick Gold, which will be reporting on August; its results will probably be marred by high depreciation.
In China the demand for gold appears to remain high. China has started to challenge India for the position of largest gold consumer in the world. Analysts at many leading financial institutions believe that demand from central banks and consumers in China and India will continue to support the price of gold. Moreover, a potential renewed crisis for the Eurozone might also stimulate the demand for gold. As for the Eurozone crisis – a key factor to higher gold prices – it should be noted that after downgrading Italy to BBB+ status, Fitch also revoked France’s AAA rating in early July. In addition, the government crisis in Portugal has led to a rise in bond yields in Portugal. IS gold becoming a solid investment again? Given the wildly fluctuating market conditions worldwide, there may be very few things that are ‘solid’ any longer; gold valuations have shattered any semblance of certainty. Nevertheless, for the next few months the conditions are favorable and should give impetus to speculators and long-term investors alike.
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