TSX lower as write-downs hurt gold miners

The TSX Composite Index was off 103 points to 12,686.63 for the Feb. 11-15 period as market activity unfolded in anticipation of a G20 meeting set on addressing the emerging theme of currency wars — where one country lowers the value of its currency to stimulate its economy.

Other key contributors to the markets weak performance were disappointing European growth figures and big write-downs turning into losses for Canadian gold miners.

The latter was factor in the Global Gold Index being down 14 points to 264.47 as was the lower price for gold itself as the yellow metal’s price fell US$58 to US$1,609 per oz.

The write-down for the world’s biggest gold producer had nothing to do with gold, however. Barrick Gold made a big move into the copper space two years ago via a $7.3-billion acquisition of Equinox Minerals and its Lumwana copper mine. Falling copper prices and higher-than-expected costs led to lower production and profitability at the mine and Barrick had to take a US$3.8 billion impairment charge for the mine and its overall copper business. Barrick shares were off $1.02 to $31.82 for the period.

Fellow senior producer Kinross Gold also took it on the chin as it had to take another big time impairment charge in connection with its recently acquired Tasiast project in Mauritania. The latest write down is for US$3.2 billion, a number that contributed to the company’s net loss of $2.989-billion for the quarter. Kinross paid $7.1-billion for Red Back Mining and its two key assets, Tasiast and the Chirano mine in Ghana, just two years ago. The company had already taken a $2.5 billion charge on the assets last year and some quick math shows that it has now written down 80% of the price it paid for the acquisition. The company’s shares were off 2% and finished the period at $7.99 per share.

Keegan Resources and PMI Gold nixed plans to merge when it became evident that PMI shareholders wouldn’t approve the deal. The two companies own neighboring gold projects in Ghana. Beyond the synergies the deal could unlock, it would also have given PMI access to Keegan’s well-stocked bank account, enabling the company to finish building its Obotan gold mine without taking on additional debt. Cash flows from Obotan were then to flow to the development of Keegan’s Esaase project. Or so was the plan. Keegan shares were off 6% to $3.10 for the period.

A downgrade and the possibility of funding shortfall had San Gold shares down 44% to 33¢ for the period. Disappointing production results, weaker production guidance and higher capex had the Street expecting a significant funding shortfall for the company.

The gold sector wasn’t the only one suffering poor valuations. The diversified miners, as represented by the Capped Metals & Mining Index, were also off as a group. The Index was down 11 points to 965.51 and the price for copper was off 2¢ to US$3.74 per lb.