Impairment charges for mining companies explained

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Impairment charges, as they are called, dominated subsequent headlines. To tally a few of largest: Newcrest - $5.6 billion; Barrick Gold - $8.7 billion; Kinross - $2.3 billion; Goldcorp - $1.9 million; and Newmont - $2 billion. The explanation for the losses was a variation on the same theme. They were losses “largely due to short-term and long-term gold price assumptions,” as Kinross put it. The wording was much the same across the gold herd.

But how does an impairment charge come to be? What are the basic mechanics gold miners use to assess it? What happens if the price of gold goes back up? These are questions worth considering as the force of such losses, driven by a much diminished gold price, blows through the balance sheets of so many gold miners. They were the overarching questions the PwC's Dean Braunsteiner, an accountant specializing in the mining sector, addressed in an interview with Mineweb Thursday.
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... Under old, pre-2011, accounting rules in Canada, where many gold miners are headquartered, impairment charges were a one way street. Now, following the adoption of new international accounting standards a couple years back, known as IFRS, the accounting goes both ways.

“Under IFRS not only do you have impairment charges, but you can have those impairments reversed in the future, which is quite unusual compared to what I would call old Canadian GAAP (generally accepted accounting practices) where once you took an impairment charge, that was it. You took the charge and went with that revised amount going forward.”

With the new IFRS standard if the gold price rises again, buoying longer term forecasts along with it, then non-cash net gains will make a mark. “So we're seeing a bunch of impairment charges now,” Braunsteiner says. “But in the future as the longterm price of gold recovers, you may in fact start to see companies writing up their assets, or reversing those impairment charges, which will be a bit unusual.”
More: http://www.mineweb.com/mineweb/content/en//mineweb-canada?oid=201486&sn=Detail
 

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