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Newmont Expects High Impairment Charges for Its Peru Mine in 4Q16

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Impairment at Yanacocha

On December 13, 2016, Newmont Mining (NEM) released a statement that said that the management expects to record an increase in asset retirement obligation (or ARO) at its Yanacocha operation in Peru. The company is conducting a comprehensive study of the Yanacocha reclamation plan. This is part of the requirement to submit an updated closure plan to Peruvian regulators every five years.

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Increase in non-cash charges

The management expects to record an increase in ARO of between $400 million and $500 million during the fourth quarter of 2016. This will also lead to a non-cash charge to reclamation expense for 4Q16 of between $60 million and $90 million. The increase in ARO is mainly due to higher future estimated water treatment costs, earthworks, demolition, and related support activities.

The company also said that it is required to assess Yanacocha’s long-lived assets for impairment. Newmont stated that it’s likely that it will book a non-cash impairment charge of between $1 billion and $1.2 billion during 4Q16 as a write-down of long-lived assets.

Impairment for peers

In the past, Barrick Gold (ABX) has taken huge write-downs for its Pascua Lama and Lumwana projects. Goldcorp (GG) has taken impairments at its Cerro Negro mine. Kinross Gold (KGC) has also taken impairments on several of its assets. The VanEck Vectors Gold Miners ETF (GDX) invests in the stocks mentioned above. The SPDR Gold Trust (GLD) is a physical gold-backed ETF.

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