Gold miner results to get "another kick in the pants" on reserve losses

Gold mining (GDX) CEOs may be wishing they had followed the lead of Kinross Gold (KGC) in reducing its gold reserves last year after most of the big North American miners report year-end results this week; thanks in part to the reserve issue, they could be a huge mess, FP's Peter Koven writes.

The miners didn't see last year's 27% price plunge coming: With the exception of KGC, their reserves are calculated based on prices far above the current ~$1,250/oz., as Barrick Gold's (ABX) reserves are calculated at $1,500/oz., Goldcorp (GG) uses $1,350 and Newmont Mining (NEM) $1,400 - those numbers will come way down when year-end results are reported.

"You would think after the tens of billions of writedowns that the industry suffered that we would be done," says Deutsche Bank's Jorge Beristain, "but no, it is going to be another kick in the pants for the fourth quarter."

The miners at greatest risk for reserve reductions are those with high costs and low grades, such as Golden Star Resources (GSS), Iamgold (IAG) and Gold Fields (GFI).

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Comments (24)
  • Stock Market Mike
    , contributor
    Comments (3730) | Send Message
    What do you think - already priced in?


    I think the trend in gold's price is what matters the most at this point. It's been on a steady 1% climb every single day.

    11 Feb 2014, 11:00 AM Reply Like
  • justaconsumer
    , contributor
    Comments (104) | Send Message
    Yup, all sell your mines so i can buy at a lower price :p
    11 Feb 2014, 11:04 AM Reply Like
  • eppf2
    , contributor
    Comments (356) | Send Message
    Sell so I can buy at a lower price.
    Man, I cannot tell you how often I have heard that over the years. I heard it when gold was $1800, $1700 I will buy more from those selling. Over and over those of us that did sell in the $1700 range a couple of years ago are very happy now that we did. An old adage in trading DO NOT FIGHT THE TREND.
    11 Feb 2014, 11:20 AM Reply Like
  • justaconsumer
    , contributor
    Comments (104) | Send Message
    Which TREND are you refering to? The "since gold was 1800" TREND (which indeed goes down spectacularly). The "all time" TREND of gold (which is still up) or the very recent Gold miners gain + - 20 % upwards TREND. Of those three TRENDS i only fought the "when gold was 1800" TREND because i bought miners at 1250. Which made me over 40 % profit as we speak today. So fighting the TREND CAN very well pay off! :)
    11 Feb 2014, 12:16 PM Reply Like
  • 6151621
    , contributor
    Comments (1172) | Send Message
    Way to select the bearish bias articles SA. Only confirms the trend is now up.
    11 Feb 2014, 11:19 AM Reply Like
  • germiller
    , contributor
    Comments (982) | Send Message
    Seeking Alpha really "blew it" with this release, as it presents completely wrong information, and even worse, does not use the reserve valuation numbers that ABX, NEM and GG presented over the past two months! And Seeking Alpha even published these transcripts! See the key quotes from those transcripts below.


    ABX (CIBC Whistler Institutional Investor Conference (Transcript) Jan. 23, 2014 5:13 PM ET) "And so, we’ve taken a conservative approach this year and we’re going to value our reserves at $1,100 per ounce as well as running the mine plans at $1,100 per ounce."


    NEM (Q4 2013 Preliminary Production and Sales Results and 2014 Outlook Conference Call January 31, 2014 10:00 AM ET) "...we reduced the price assumption from $1,400 to $1,300 per ounce."


    GG (Scotiabank Mining Conference 2013 Dec. 3, 2013 4:05 PM ET) "we continued funding our growth projects at $1,400, but when we started to move from $1,400 to $1,200, we reduce our capital outlaid for the year from $2.8 billion to $2.6, we tightened up exploration, we are tightened up G&A, we undertook all those action plans that we cannot set out in our budget last year"
    11 Feb 2014, 11:52 AM Reply Like
  • doc47
    , contributor
    Comments (1795) | Send Message
    Thanks for the update Germiller. Unless this article was sitting on a shelf for months on end, there is no excuse for it. There is certainly no excuse for SA editors (you do have editors, don't you?) to let this get published with a free pass.
    11 Feb 2014, 12:21 PM Reply Like
  • goldfishka
    , contributor
    Comments (2) | Send Message
    common, i need them to drop, sold my EGO yesterday :(
    11 Feb 2014, 11:54 AM Reply Like
  • StephanJK
    , contributor
    Comments (54) | Send Message
    One year ago, this article may have been relevant. The stock market always anticipates the future. The future - without any doubts - is a bright one for the miners. We will see a gigantic short squeeze.
    11 Feb 2014, 11:57 AM Reply Like
  • TDWelander
    , contributor
    Comments (624) | Send Message
    To StephanJK. ABX has been in the $16 to $20 per share range
    now for I think 6 months with a P/E ranging from 6 to 10. The
    ABX share price in the last five years has been up between
    $55 and $60 per share with a P/E between 12 and 16.


    To suggest shorting on the current ABX price of $19.57 per share
    sounds like the biggest stretch I have heard in at least ten years.
    So if you time it perfectly, which never happens, you might make
    what $2 to 4$ per share on a short?


    Oh, you must be thinking big at making $10 per share possible.
    What are the chances of an ABX stock price of $10 per share
    when it has been up over $55 per share? Especially when you
    consider the very good cash flow of Barrick ABX. Other than
    ABX stock manipulation, ABX is highly unlikely to go to
    $10 per share. Certainly possible. But only on
    market manipulation. Not on real valuation.


    Which means to me even if ABX were to blip down to $10 per share,
    the scavengers would be around to lap up ABX with a likely P/E
    at $10 per share of around 4? Or ABX would not stay at $10 per
    share for long.


    Give us all a break. To just say we will see a short squeeze with
    these ABX stats is just ridiculous.


    I think you better take your short squeeze idea stock by stock. It does
    not make sense for ABX currently; or the foreseeable future based on
    the current ABX stats..
    11 Feb 2014, 04:44 PM Reply Like
  • StephanJK
    , contributor
    Comments (54) | Send Message
    I did not mention ABX in my comment with one word. What we will see is the full correction to the imbalances in the precious metal marketplace, the short squeeze, I'm talking about will happen in the gold (and silver) market and this will propel the miners upwards. Be prepared!
    12 Feb 2014, 04:57 AM Reply Like
  • JoeShmo1979
    , contributor
    Comment (1) | Send Message
    meanwhile GDX just broke above 200 day MA
    11 Feb 2014, 12:11 PM Reply Like
  • sheeple123jump
    , contributor
    Comments (414) | Send Message
    I think I'll stick with my theory based on technical chart watching. The down trend is a giant channel of Doom since 2012 top zone. bracketed by the 50 and 200 moving averages.
    a channel to be watched as the resistance zone where the next giant short attack should begin. Elliott waves have counted completion here. the pullback is due soon if not now.
    The trend is down in miners. Many experts have shown the miners and metals are a rigged game, totally manipulated. If That game is ongoing still, there should begin the next down wave..... any time soon. GDX pullback target zone down is 21-22 area. Target up is 24-25 area , and then 27 top.
    Its a down trend channel of Doom.....
    GDX looks ready to plunge 9 %
    11 Feb 2014, 01:47 PM Reply Like
  • 6151621
    , contributor
    Comments (1172) | Send Message
    many miners have been basing since july meaning mostly flat channel and many are crossing over nearly flat 200 day moving averages so a reversal looks good but there should be many scary down moves if the up move is really strong as it has been recently
    11 Feb 2014, 03:16 PM Reply Like
  • 6151621
    , contributor
    Comments (1172) | Send Message
    And really really scary could even push gold to new lows -- that would send miners diving but not because of accounting of reserves. Analysts following miners should already know how to estimate reserve impact based on gold price action.
    11 Feb 2014, 04:51 PM Reply Like
  • gmmpa
    , contributor
    Comments (679) | Send Message
    I went long ABX October 2013. I am not a believer in owning the physical commodity and decided on Barrick on basic fundamentals evaluations and favorable technical analysis at the time for a good entry point. Prior to that I never owned gold in my portfolio in any form. I never saw the compelling need. To me it is just a commodity that is good to own in a time when inflation and devaluation of currency seems to be the world wide central banking trend that is threatening the economic stability of the world. After taking the long position I started reading all the articles here at SA to see the shared opionions. I am beginning to believe after six months of reading that gold is not viewed by many as a just a commodity. The comments are all over the map and very often driven by a range of emotions that are hard to understand.
    Comments like " gold is the currency of the gods". "Paper gold is no good. Physical gold to the ticket". "Gold is going to $2000/oz". "Gold is going to $1050/oz". "Gold is being manipulated by a worldwide conspiracy". I was sitting at a table at a financial dinner meeting and a guy at the table proudly announced that he converted his entire portfolio to physical gold. That said... I am beginning to believe that gold is just a worthless metal that is driven by emotional demand of a limited resource whose price has no correlation to anything. It should be traded on technical analysis and not used as a core investment. I read the history of gold and it seems that only after 2000 did it become something especial for investors to discuss in the forums and at dinner. I don't get it.
    11 Feb 2014, 05:55 PM Reply Like
  • sethmcs
    , contributor
    Comments (3573) | Send Message
    Big non cash write downs improves costs and margins down the road. Improving costs and margin leads to upgrades and momentum. Then the cycle turns.
    11 Feb 2014, 10:02 PM Reply Like
  • ted lujan
    , contributor
    Comments (1726) | Send Message
    Gold is the only place to truly protect ones cash that is not needed for immediate use. The developed countries are pumping out paper money like the Kaiser did in Germany after World War One. We all have heard how it took a wheel barrow of paper money to buy a loaf of bread. The best way to tax the citizens is to reduce the value of their savings. they call it inflation What can they do? who can they blame? Am I the only one seeing this taking place? Are we the sheep being taken to the slaughter house? I have been buying mining silver and gold stocks because they have the assets in the ground that hopefully appreciate to reflect what ever the government decides to do with our fiat currency. I like KGC, HL,LSG and TC. I hope that this gives me some protection from what ever the government descides to do to our savings.


    11 Feb 2014, 10:47 PM Reply Like
  • DeepseaDiver
    , contributor
    Comments (26) | Send Message
    Newmont Mining hit an intraday low of $20.79 on 6Feb14 and the last time it got that low was almost 12 years ago when it hit $20.80 on 24Jul04. NEM’s dividend yield beats its peers at 3.49% as well as the US Government’s 10 year T-Bill. If you believe that NEM’s fundamentals are still sound and they can service their debt then NEM is a good value play for the long term investor. I think it foolish to have all your eggs in one basket so gold stocks should be just a part of a well diversified portfolio. I’m not a doomsayer waiting for the financial Apocalypse to come but I am concerned about the Global debt that some project to be in the ridiculous quadrillion range. Owning stocks in large cap corporations that have goods or services that people need will serve as a buffer against hyperinflation in such a global Black Swan event. Yes, you’ll take a haircut in such an event but you’ll still have a few hairs left. Stay the course and follow Warren Buffet’s advice: “Buy low – sell high.” – and enjoy that dividend as he’s enjoying his BofA special dividend.
    12 Feb 2014, 09:58 AM Reply Like
  • justaconsumer
    , contributor
    Comments (104) | Send Message
    Warren Buffet also said "Diversification is protection against ignorance. It makes little sense if you know what you are doing." :)
    14 Feb 2014, 04:14 PM Reply Like
  • TDWelander
    , contributor
    Comments (624) | Send Message
    To justaconsumer. Keeping it real is nearly everything. What matters is the demand side, or the customers buying gold, silver, and other precious metals. It does not matter if you know what you are doing and do not have a market or demand for your product. Or Mr. Buffet understands implicitly that market demand for your product or products is everything. And that more than one product or diversification is the insurance against a mistake or ignorance, where most mistakes come from.
    17 Feb 2014, 12:01 PM Reply Like
  • justaconsumer
    , contributor
    Comments (104) | Send Message
    Hehe, i do agree with DeepseaDiver that a little diversification never hurts. I just found it funny to throw in another "Buffet" quote. I think people tend to quote him a little too often :p
    17 Feb 2014, 12:13 PM Reply Like
  • TDWelander
    , contributor
    Comments (624) | Send Message
    To justaconsumer. Thanks. The problem with listening to billionaires appears to be as happened to you. Numerous to many facts are assumed to the point they appear to not know what they are talking about, when in fact the explanation is so shortened as to look disconnected or unreal.


    When you run into this, it is best to go to some experts on the subject and request they fill in the intermediate blanks. I got lucky here, more likely some grace, understanding most to all of the intermediate facts Mr. Buffet or his stand in did not appear to provide.
    18 Feb 2014, 11:11 AM Reply Like
  • TDWelander
    , contributor
    Comments (624) | Send Message
    To justaconsumer. In fact, practically all start ups do not know what they are doing; but start up because they know the demand exists and the investment bankers agree with them giving them the money to go for it.


    Even with the boot camp or formal business prep now required of most start ups by investment bankers, seems to me it is only two or three
    out of a hundred that are still in business 5 years later.


    In defense of the start ups, with practically every new product, the manufacturing, distribution, and/or integration of a new product or service is unique. While it is possible to extrapolate from similar previous products or services, it is still only an extrapolation, or an experienced guess.


    Or why product or service demand is so front and center nearly everywhere in the business world. It is the over riding measurable quantity in most business instances as opposed to the other highly variables, usually experienced guesses in business, especially with start ups.
    24 Feb 2014, 04:11 PM Reply Like
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