Gold Miners Destroy Billions of Dollars... and Share Prices Rise

In less than two years, nearly $30 billion went to "money heaven."

 

That's how much money gold miners have "written off." That's how much money these companies have admitted to wasting on stupid, expensive acquisitions over the last seven years.

 

I've been following this story since late June. In just the past month, the total write-off amount has nearly doubled. And we can expect more still... But we're seeing signs that the market might be ready to forgive gold miners' mistakes.

 

Let me explain...

 

From 2001 to 2011, gold prices went almost straight up. Endlessly increasing prices meant there was no accountability for gold miners... It didn't matter if they spent too much on a new mine. A higher gold price made everyone look smart.

 

Now, the tide is washing out. The price of gold is down from $1,900 an ounce to about $1,300. But the costs to mine gold – oil, equipment, labor, etc. – haven't fallen. A lot of these new mines can't make a dime... So gold miners are being forced to "write off" their values.

 

The latest round includes a $1.8 billion write-off from Newmont, which I said was "particularly vulnerable." Major gold miner Goldcorp announced a $2 billion write-off. And South African giant AngloGold Ashanti announced a $2.6 billion write-off. It also announced that it would cut some production this year. (That supports our case that many of AngloGold's mines are not profitable at the current gold price.)

 

Top 5 Undervalued Companies To Watch In Right Now

As I said, the tally for gold miner write-offs is approaching $30 billion now. The question on many investors' minds is: What happens next?

 

And the answer could be good news. Barrick Gold was among the first to admit fault. With its total of $8 billion, it had some of the largest write-downs of the group. As you can see from the chart below, investors are moving back into the stock.

 

 

Barrick Gold shares bottomed on July 5 at $13.76. They're now up 28% from that low.

 

Newmont shares fell after its announcement... but they're still above the stock's July low. The same is true of Goldcorp.

 

AngloGold Ashanti is in the worst shape of the bunch. But it's also one of the highest-cost producers.

 

Picking bottoms is difficult. But if we start to see major gold miners rally even as they release bad news – like a billion-dollar write-off – it's likely the worst is behind us.

 

Good investing,

 

Matt Badiali

P.S. I'm putting together a detailed report on the major gold producers for my S&A Resource Report readers. I'm digging into each company's assets to figure out which gold miners can make money at low gold prices... and which could go under. If you're interested in making huge profits in the gold sector, this is must-read research. To learn more about the S&A Resource Report – and how to receive all of my research – click here.