Write-downs are all too common in the current climate, but it was interesting to see the announcement from OZ Minerals, which came out earlier today.
OZ, as longer-term sector watchers will know, enjoyed itself greatly in the run-up to the global financial crisis under its former name of Oxiana, but came rather unstuck thereafter.
On its website it refers to 2008-2009 as "a period of financial uncertainty", which really rather understates the matter as the whole company would have been sold lock, stock and barrel to a Chinese parastatal had the Australian government not stepped in and demanded that the Prominent Hill copper project remain in Australian hands.
So Prominent Hill remained inside OZ, while the rest of the assets went under the hammer to the Chinese.
At the time, an impairment charge of A$251 million was incurred against the asset. This was subsequently reversed in 2010, when commodity prices improved.
But now, in the wake of the latest bout of misery in the commodities market, a new impairment charge is likely to be booked, in the accounts for the six months to 30th June. The likely total? – between A$200 million and A$240 million.
This ping-pong style of valuation must be leaving investors somewhat mystified as to the actual worth of the asset, and goes a long way to demonstrating how much more of an art than a science accounting really is.
On the other hand, the valuation ups and downs amount roughly to 12 per cent of the value of the asset, so perhaps not wholly unreasonably in a market where commodity pricing has shown itself to be even more volatile than that.
The real point is that an asset may not be worth the same amount from one day to the next, no matter how meticulously accurate the discounted cash flow model is. In tricky times, numbers may change, models may change, and valuations may change. What doesn't change is who you trust, and in resources trust must always be uppermost in the mind of any investors.
Building trust takes time, but one way to get the process going is to check out our coverage on Minesite. Many of the companies we cover we've known for years. Do we trust them all? No. But you'll get a good idea from our copy which ones we do trust, and which ones we don't.
| 95th Minesite Forum - 11th September 2013 |
95th Minesite Forum
Wednesday 11th September 2013
The Brewery
Chiswell Street
London
EC1Y 4SD
(Nearest stations are Moorgate and Liverpool Street)
Presenting Companies Include:
Kefi Minerals
If you are interested in Speaking or Sponsoring a Minesite event
please contact; Paul Newman paul@minesite.com 0207 562 5422
Our forums (which are FREE to attend) enable investors to hear directly from mining and exploration company executives, and to ask questions before they invest.
| Jobs4mining in association with Minesite.com |
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