TORONTO (miningweekly.com) – Vancouver-based Goldcorp on Thursday became the latest gold miner to book an impairment charge, as it wrote down the value of its assets by $1.96-billion on the back of a sharp decline in the gold price.

The noncash impairment charge was mainly related to the exploration potential at the world’s fifth-largest polymetallic mine Peñasquito, in Mexico, where lower metal prices have had a significant impact on the in situ market value.

Last month, Australia’s Newcrest, announced an impairment of between A$5-billion and A$6-billion – said to be the biggest one-time charge in gold-mining history – while South Africa’s Harmony Gold also said it expected an asset write-down of between $260-million and $280-million.

The Goldcorp impairment has plunged the company in a net loss of $1.93-billion for the second quarter, ended June, compared with net earnings of $268-million in the second quarter of 2012. Revenues shrunk 17.8% to $889-million in the period, despite gold output rising 11.7% to 646 000 oz and ounces sold increasing 17.3% to 624 300 oz in the period.

All-in sustaining costs totalled $1 279/oz in the quarter, while on a co-product basis, cash costs rose 15% to $713/oz.

Adjusted to remove special items, Goldcorp recorded net earnings of $117-million, or $0.14 a share, sliding 64.7% when compared with the $332-million, or $0.41 a share, in the second quarter of 2012. Analysts had expected adjusted earnings of $0.21 a share.

The adjusted operating cash flow was $388-million or $0.48 a share.

Gold prices have fallen sharply from the start of the year, hitting a near three-year low at about $1 180/oz in late June. Goldcorp's realised gold price dropped 15% to $1 358/oz in the quarter, down from $1 596/oz in 2012.

Goldcorp said it was reviewing its short-term operating plans and cutting capital spending by $200-million to $2.6-billion this year.

The company said it would defer some capital spending through 2014 at its three mines under construction - Cerro Negro, in Argentina, and Eleonore and Cochenour, in Quebec, adding that the reductions were not expected to have a material impact on these projects’ timelines.    

Further reductions were also identified at early-stage development projects including Camino Rojo, in Mexico, El Morro, in Chile, and Cerro Blanco, in south-western Guatemala.

The miner has also targeted a 10% cut to general and administrative costs this year, and cut exploration spending by $25-million.    

PROTECT RATINGS

Meanwhile, Moody’s Investors Service on Thursday encouraged gold producers to take action to protect their investment ratings. 

The ratings agency, which rates 11 gold producers, said its ratings assumed producers would respond to the current price environment for gold by pulling levers within their control to reduce the level of earnings deterioration.

“These actions include reducing operating costs, deferring capital spending and idling higher-cost mines. Investment-grade gold producers such as Newmont Mining, Barrick Gold and Goldcorp tend to have more options to deal with low gold prices than smaller, speculative-grade rated companies such as Iamgold or Eldorado Gold,” the agency said in a note.

However, operating cost-reduction measures could prove difficult to implement.

Moody’s said despite labour, equipment and consumable inflation being likely to ease with the drop in the gold price, elevated fuel costs, generally declining ore grades, higher government royalty rates and taxes and increasing environmental and community costs would limit the ability of the gold miners to reverse the upward operating cost trend.

The agency stressed that the volatile gold price compounded cost difficulties. Producers were found to be typically reluctant to quickly change behaviour, given the price volatility, believing the gold price would trend upward over the medium to longer term.

“We believe companies are unlikely to see material cost benefits until 2014,” Moody’s said.

Industry production and reserves were also expected to decline, as the industry had, in general, been unsuccessful at increasing either production or reserves over the past several years, despite large capital expenditures.

“We expect most cash cost conservation to come from the deferral of capital expenditures for mine development leading to a reduction in reserve life.”

The agency said liquidity provides near-term flexibility and was generally solid, which provided critical support to ratings, while companies implement their cost reduction plans.