Loading ...Fake vs Real assets – Barrick Gold
Barrick Gold has been trading at roughly book value as of today. Tonight they announced 3 billion in impairments… 1.8 billion in Goodwill and a potential for 1.2 billion at its mines. This is going to reduce its asset values to approximately 30 billion. They have paid off 3 billion in debt this year so far, so this really shouldn’t affect the book value of the company. It is currently trading at Book Value at the moment right now… so ABX is trading at the accounting definition of its price in an orderly liquidation.
Some of the other miners are going to have to take much bigger impairments as a percentage of their assets. Yamana, IamGold, and Goldcorp. For example, Goldcorp seemed to think that their mines were worth 22 billion as of December 2014. They are a 40 percent partner in Pueblo Viejo which Barrick wrote down tonight. That tells you that Goldcorp is going to have to take impairments at a minimum at Pueblo Viejo and most likely Eleonore. The market is telling you (and now Barrick has actually stated it) that Goldcorp’s assets are going to be impaired by giving it a Price/Book value of .48.
The names trading very far under book value ARE NOT THE CHEAPEST NAMES. They are the ones with the worst mines and the most aggressive reserve valuations.
What exactly are impairments and why are they necessary for companies to take?
Gold miners value a mine based on the amount of metal that is economic at a certain gold price assumption… usually the average price of gold for the prior year. When the price of gold falls, ounces that were economical at 1300 are not economical at 1100… thus the impairment charge.
Also, is there such a thing as reverse impairments for when the assets of the company are grossly undervalued?
Yes. They can reverse the impairment and credit it as a revaluation surplus but I have yet to see any gold company do this. There is a trend developing to be conservative after the massive impairments over the past couple of years and to value the mines at 1000$ gold.
Thanks Neil and Cash
learn something every day here
this is what is needed now to clear the decks, so we are comparing apples with apples, and re-calibrate what is worth buying and what should be avoided. have to be very selective and only own the gold miners that are delivering on shareholder value, production, profits….and not growth via leveraging the balance sheet. for example my three Canadian musketeers, pass the test. Barrick and many of the other majors do not.