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All eyes on Newcrest Mining now

The news wasn’t unexpected, but it still stung when Newcrest Mining (ASX: NCM) confirmed that it expects write downs to surpass initial estimates and hit $6.2 billion for the 2013 financial year. Newcrest had previously issued guidance estimating the damage caused by falling gold-prices would be a $5-$6 billion decrease to the value of the mines the company owns.

A $6.2 billion loss is huge. How huge? Well, it’s roughly the equivalent of writing off a fleet of 19 Airbus A380s at $315 million each, or 4.6 million ounces of gold at $1300 an ounce… or 70% of Newcrest’s current market capitalization of $8.6 billion.

The slide Newcrest shares have taken this year, and the limited drop in response to the write-down announcement, suggests that most of the bad news has been priced into the current share price which is down 49% on a year ago.

Newcrest is certainly not alone in being hit by asset write downs. OZ Minerals (ASX: OZL) has anticipated asset impairments of $200 million to $240 million and Evolution Mining (ASX: EVN) has expected impairments of $350-$400 million.

Outside of Australia the write-downs have been even bigger. The biggest single hit so far appears to be from the world’s largest gold producer, Canadian mining giant Barrick Gold (NYSE: ABX), which announced US$8.7 billion of write-downs. According to Bloomberg more than US$21 billion has been written off gold-companies around the world over the last two months.

Newcrest investors will be hoping this loss will put an end to the poor run the company has had this year. This includes extensive cost cutting, the shelving of growth plans and an unfortunate incident where a briefing of selected analysts prior to a public announcement may have breached ASX continuous disclosure requirements.

If the worst has now passed, Newcrest could be primed to take advantage of improving market conditions as lower costs and better operating efficiencies take effect.

Foolish takeaway

All eyes will be firmly fixed on Newcrest heading into next week when the company announces its full year 2013 result to the market on 12 August and the full extent of the turbulence is made clear.

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Motley Fool contributor Regan Pearson does not own shares in any companies mentioned in this article.

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