BlackRock Inc. (BLK)’s Evy Hambro, who manages the $8 billion World Mining Fund, expects more heads of gold producers to exit as companies book further writedowns after the metal’s biggest quarterly drop in more than 90 years.
“It’s very clear to us that there will be further writedowns as we go into the full year, or the results season at the beginning of next year,” Hambro said in an interview, declining to name any companies. “I would be very surprised if we didn’t see more change in CEOs across the gold industry.”
Producers from Toronto to Melbourne are pledging to curb spending and halt expansions after taking $26 billion in writedowns since July in the wake of the price decline and an acquisitions boom. Output from the 10 largest global producers increased in the three months to June 30 to 5.6 million ounces from 5.4 million ounces in the previous quarter, according to data compiled by Bloomberg.
“Companies have been chasing ounces instead of profitability and return, and now those decisions in the past are coming back to haunt them,” Hambro said yesterday by phone from London. “There are lots of ounces still being produced that aren’t profitable. The gold price fell six months ago, what’s going on?”
Optimistic assumptions on gold prices used to calculate the value of reserves mean some producers probably face new impairments, Goldman Sachs Australia Pty forecast last month in a report.
Bullion entered as bear market in April and is heading for its first annual drop in 13 years after some investors lost faith in the metal as a store of value. It has fallen 21 percent this year to about $1,320 an ounce. Goldman Sachs Group Inc. predicts that gold will drop to $1,050 at the end of next year as U.S. economic growth gains and monetary policy is tightened.
The industry shake up has claimed at least seven CEOs of North American producers in the past 18 months, including Aaron Regent as the head of Barrick Gold Corp. (ABX), the world’s largest producer. Investors needed to see the industry move to cut costs and stop unprofitable production, Hambro said in June.
“We have seen this train smash coming,” he said yesterday. “The majority of gold companies have been like rabbits caught in the headlights - they are not moving out of the way.”
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