Challenges in Argentina
Goldcorp (GG) has already warned of a $2.7 billion 4Q14 charge for impairment at Cerro Negro mine in Argentina. This is because the mine is facing several challenges due to fiscal conditions in Argentina.
The company said that Argentina’s government continues to support various actions and programs aimed at conserving its foreign exchange reserves. These include restrictions on importation of goods and services and limitations on the exchange of Argentine pesos into US dollars.
The financial consequences of these programs as well as the continuing inflationary environment in the country are negatively impacting Goldcorp’s operations at the Cerro Negro mine. On top of that, the market valuations of future exploration potential have declined.
Leading to impairment
Along with the declaration of commercial production, Goldcorp is conducting an impairment test of its Cerro Negro assets. The test will assess the full effect of these actions in light of the ongoing challenging fiscal conditions in Argentina.
Preliminary analysis indicates an after-tax asset impairment charge in the range of $2.3 billion to $2.7 billion in the fourth quarter. The company also said that write-down will first go to the $975 million of goodwill. Then it will be proportionally allocated to exploration and the plant. This will be based on market conditions and market value ascribed to exploration potential as well as increased cost assumptions for the plant.
The VanEck Vectors Gold Miners ETF (GDX) invests in the stocks mentioned above. Goldcorp forms 10.7% of its holdings. Investors can get exposure to spot gold by investing in the SPDR Gold Trust (GLD).