By Rhiannon Hoyle
SYDNEY--Falling metals prices are exacting a heavier toll on
Australia's mining sector--once the engine of the country's
economy--with two mid-sized producers becoming the latest to warn
of hefty impairment charges.
OZ Minerals Ltd. (OZL.AU), which runs one of Australia's largest
copper mines, and gold producer Evolution Mining Ltd. (EVN.AU)
Monday warned of a combined hit to their bottom lines of up to 640
million Australian dollars (US$593 million). Each blamed the
looming writedowns on sharp falls in prices of commodities like
gold--Australia's third-biggest export--as the U.S. edges toward
tighter monetary policy and China's economy cools.
Mining companies in Australia are moving aggressively to counter
slower demand for commodities and protect their balance sheets by
closing unprofitable mines, laying off workers and selling assets.
But the scale of the industry downturn has exposed another problem:
mines and resources were worth vastly more in the boom years than
now.
In a major move, Australia's largest-listed gold producer
Newcrest Mining Ltd. (NCM.AU) last month warned it may write down
the value of its assets by as much as A$6 billion in response to a
steep fall in precious metal prices. Other miners, including Rio
Tinto PLC (RIO), have taken impairment charges on assets bought
when commodity prices peaked.
"There is an air of inevitability" around asset writedowns given
the scale of the commodity price falls recently, said Tim
Schroeders, a fund manager at Australia's Pengana Capital. "But
it's no doubt going to cause a bit of pain, particularly for gold
producers."
The spot price of gold has fallen around 20% since the start of
January as investors abandoned the metal on expectations the U.S.
would soon begin tapering its monetary easing program--a key driver
of gold-price gains in the latter years of its 12-year bull
run.
Copper prices have also declined sharply this year as financial
markets fretted over the economic slowdown in China, the top buyer
of base metals. Copper on the London Metal Exchange has fallen 14%
so far this year.
Melbourne-based OZ Minerals, which owns the Prominent Hill
copper-and-gold mining operation in South Australia state, said it
expects to record an impairment charge of up to A$240 million when
it releases its half-year results Aug. 14.
"The anticipated asset impairment has arisen due to a
combination of factors, including lower expected prices for copper
and gold, particularly in the near term," the company said in a
filing.
Evolution Mining, which counts Newcrest as its biggest
shareholder, said separately it expects to write down the value of
its assets by up to A$400 million.
"Recognizing a change in the gold price and sentiment for the
gold sector, we have reviewed the carrying value [of Evolution's
assets] and believe they should be written down," Executive
Chairman Jake Klein said on a conference call. "It doesn't reflect
our confidence in the future of these assets."
At their lowest, shares in OZ Minerals were down 3.4%, and
Evolution down 6.0%. They closed down 2.0% and 1.2%
respectively.
Mr. Schroeders said he wouldn't be surprised to see more
writedowns before resources companies report earnings next
month.
Some of the world's biggest resources companies have already
written down the value of assets as the global mining boom slowed.
In January, Rio Tinto said it would book a US$14 billion charge
against the value of its troubled aluminum division as well its
coal assets in Mozambique. BHP Billiton Ltd. (BHP) and Anglo
American PLC (AAL.LN) have also taken impairment charges against
some assets this year.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
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