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Corporate: Recent mining company writedowns

I was asked yesterday, based on my business valuation consulting background, for my views on mining company writedowns following recent announcements by:

• Barrick Gold Corp. on February 14 that it was taking a writedown of U.S.$4.2 billion, mostly related to its Zambian Lumwana copper mine which it acquired pursuant to the acquisition of Equinox Minerals Ltd. in 2011;

• Cliffs Natural Resources Inc. who announced on January 24 that it was taking a goodwill writedown of U.S.$1 billion pursuant to the acquisition of Consolidated Thompson Iron Mines Ltd in early 2011;

• Kinross Gold Corporation on February 13 that it was taking a writedown of $3.2 billion, mostly related to its Tasiast gold mine (located in Mauritania) which it acquired pursuant to the acquisition of Red Back Mining Inc. in 2010; and,

• Rio Tinto on January 17 that it was taking a writedown of about U.S.$14 billion. Of the U.S.$14 billion about U.S.$11 billion was attributed to its aluminum assets, and about U.S.$3 billion that was attributed to a coal 'deal' in Mozambique.

The questions asked of me were;

• what do these writedowns mean to the mining industry?;

• do these sorts of announcements worry investors?; and,

• are all writedowns created equal, or are some more worrisome than others?

I have read 'journalist write-ups' of each of the four referenced transactions (see article links). I have not analyzed any of the referenced transactions either before or after they closed. Subject to those caveats, my overview observations are:

• first, as best I can determine, all the referenced transactions were made between arm's length parties ..... read more

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