Canadian-based gold miners, led by top global producer Barrick Gold Corp, are showing the first tentative signs of emerging from a year-long funk, having made painful adjustments to a new reality of stagnating bullion prices. After a series of acquisitions that failed to live up to expectations as costs skyrocketed, some miners have admitted their lavish spending was ill-advised and vowed restraint.
Since mid-2012, most have pledged to throttle back costs and maximise returns to shareholders, rather than pursue growth at any price. In the final three months of last year, those promises started to take shape, as evidenced in fourth-quarter financial results reported by Barrick and its smaller rival Kinross Gold Corp.
Both companies beat analyst expectations, as cost-cutting initiatives and more disciplined spending helped sooth some of the burn of rampant cost inflation.
"We're not going to spend the money just to produce ounces," said Jamie Sokalsky, Barrick's chief executive. "Returns will drive production, production will not drive returns."
Indeed the company known as an empire builder has no new construction projects planned. The focus is instead on improving operations and returns, and selling off non-core assets.
"It looks like they're serious about cost control, and they've cleaned the slate," said Pawel Rajszel, an analyst with Veritas Investment Research. "I think they're moving in the right direction."
Top US-based gold miner Newmont Mining Corp is set to report its fourth-quarter earnings this week, just days before Chief Executive Richard O'Brien leaves his post.
The company wrote down the value of its once-promising Hope Bay gold project in the Canadian Arctic last year and now has a deal to sell the asset to a private firm.
Both Kinross and Barrick booked multi-billion dollar non-cash charges in the fourth quarter, writing down the value of assets they acquired in high-priced take-overs made during the gold bull run.
The writedowns come roughly six months after the two companies fired their chief executives. Barrick cited the poor performance of its shares when ousting Aaron Regent. Kinross dumped Tye Burt, who championed the take-over of Red Back Mining in 2010 that led to two writedowns.
"It seems like everybody's bringing out the dead and getting them written off," said George Topping, a mining analyst with Stifel Nicolaus. "New CEO - new brush sweeps clean."
Market reaction was positive. Barrick's shares climbed more than 5 percent after the writedown. Kinross shares climbed nearly 7 percent. Prior to the news, both stocks were down more than 30 percent from the beginning of 2012.
With new management teams in place, both Kinross and Barrick have been vocal about shifting their strategies to focus on quality gold ounces, rather than quantity.
Barrick has slashed its mid-term production outlook by 11 percent to 8 million ounces a year, primarily on the deferral of projects that it now sees as too costly to build and mine.
With the notable exception of its Pascua-Lama mine on the border between Chile and Argentina, which could cost as much as $8.5 billion to build, Barrick has no projects in its development pipeline.
The decision to stop building new mines for the time being is the right one, said Haywood analyst Kerry Smith in a note to clients, noting the economics don't add up in the current cost environment.
"Barrick needs to focus on generating free cash in order to reduce its debt load, which is currently at the high end of our comfort zone," he said. "Deferring big capex projects once Pascua-Lama is finished will allow it to rebuild its cash balance, increase the dividend and retire some debt."
The company is also actively seeking buyers for non-core assets, such as its 74 percent stake in African Barrick Gold PLC and its energy unit.
Kinross also has backed away from its growth projects, and last year scrapped a major expansion at its Tasiast mine in Mauritania after it became apparent the plan was too costly.
The company is now working on a smaller expansion option for the West African project and expects to complete construction at its Dvoinoye mine in Russia this year.
Indeed, Goldcorp Inc, which plans to bring three new mines into production by 2015, is cutting against the trend. Canada's No 2 gold miner, which also beat profit forecasts this week, did not face a writedown and has kept its CEO.
For Kinross, which has more than halved in value since its $7.1 billion take-over of Red Back Mining closed in late 2010, the key to regaining value is resetting expectations and convincing the market it is evolving.
The company has made good strides so far though changes to leadership and strategy, said Credit Suisse analyst Anita Soni in a note to clients, even though it still has a tough year ahead in getting a handle on operations and costs.
"Over 2013 we expect Kinross to rebuild its operational credibility by delivering on guidance," she said and upgraded her rating on the stock to "outperform" from "neutral.