A year to forget
2013 was one of those rare years when gold lost its investment value, as it posted its first yearly price decline since 2000. Moreover, gold prices declined by around 28%, making it the biggest annual price decline in 32 years. As a consequence, most gold miners lost almost half their market capitalization. Yamana Gold (AUY), declined by 51% in 2013. In the first nine months of 2013, the company derived 72% of its net revenue from gold sales, thus making it vulnerable to declining gold prices. Even though the company's nine-month gold production increased by 22% year-over-year, gold revenue declined by 12.5%, primarily due to the drop in the company's average realized gold price from $1,661 per oz. to $1,448 per oz.
While Yamana has remained profitable in this low-price environment, other gold miners such as Barrick Gold (ABX) and Newmont (NEM) have struggled with profitability due to massive asset write-downs. Prior to this year, Barrick Gold valued its reserves on a long-term gold price assumption of $1,700 per oz.; that assumption was changed to $1,300 per oz. in the second quarter of 2013. As a result, the company recorded $8.7 billion in impairment charges in the second quarter. For Newmont, too, the change in gold price assumption from $1,500 per oz. to $1,400 per oz. in the second quarter resulted in an asset write down of $1.77 billion.
This is the reason why Yamana's conservative accounting policy differentiates it from other gold miners. The company values its reserves and resources at a price assumption of $950 per oz., which at current price levels protects it from asset write-downs. Moreover, bullion prices are expected to remain subdued in 2014 as well, averaging $1,200 per oz. At such a price level, there's a remote chance of Yamana reporting
