In the wake of Goldcorp Inc.’s recent US$2.3 billion impairment charge, Fitch Ratings expects to see continued write-downs in the mining sector.
The rating agency says that more write-downs are likely coming as “companies adjust expectations following a wave of acquisitions made during peak market conditions in metals and mining”. As a result, it expects industry write-downs to continue as companies aggressively pull back in capital expenditure spending and focus instead on cost reductions and shifting production to core assets.
Fitch notes that, in addition to Goldcorp (TSX:G), Kinross Gold Corp. (TSX:K) recently took an almost-US$1 billion write down, Barrick Gold Corp. (TSX:ABX) took a US$2.8 billion impairment, and Yamana Gold Inc. (TSX:YRI) recorded over US$800 million in impairment charges in 2014.
While these impairments could signal less favourable long-term outlooks, Fitch says, “they will not independently have a negative impact on the credit quality of gold miners.” It notes that these sorts of impairments are typically non-cash items, mining companies tend to have significant capital cushions to absorb write downs, and these impairments are due to changes in strategy that Fitch views as a positive for credit quality.
That said, it warns that continued, or surprising, impairments could have a negative impact on credit quality.