OREANDA-NEWS. Goldcorp Inc.'s (Goldcorp) recent \$2.3 billion impairment highlights a trend in mining write-downs as companies adjust expectations following a wave of acquisitions made during peak market conditions in metals and mining, according to Fitch Ratings. We expect industry write-downs will continue as companies aggressively pull back in capital expenditure spending and focus efforts on cost reductions and shifting production to core assets while delaying cash outlays for higher cost projects. In addition to Goldcorp, Kinross Gold Corp. took an almost \$1 billion write down related to property, plant, and equipment (PP&E) impairment and inventory write down in the fourth quarter, Barrick Gold Corp. took a \$2.8 billion impairment mostly related to a troubled mine in Zambia, and Yamana Gold Inc. recorded over \$800 million in impairment charges in 2014 related to declining mine production profiles.

While we believe impairments could signal less favorable long-term outlooks, they will not independently have a negative impact on the credit quality of gold miners. This is likely for several reasons. First: impairments are typically non-cash items and some are lagging indicators of price declines already factored into cash flow projections. Second: gold companies tend to be more conservatively capitalized and in the event they have financial covenants that would be negatively affected by the impairments, such as debt to capitalization ratios, there tends to be significant cushion to absorb the write downs. Finally, impairments in the sector are a result of changes in strategy that Fitch views as a positive for credit quality, such as delaying an expensive greenfield project or selling non-core assets for cash.

Still, we believe a scenario of continued or surprising impairments hold a potential negative impact. For instance, impairments that are linked to declines in expected long-term production profiles, increases in costs that will reduce cash flows of projects to uneconomic levels, or increases in political and economic instability in countries where mines are located could signal more permanent adverse effects. Companies delaying or indefinitely shelving new projects that were economical when prices were higher could have trouble keeping production and cash flow growth profiles in the future if prices do not rebound markedly. Additionally, declines in the market value of assets might hamper a company's ability to raise funds through asset sales.