Mining companies that write down their assets as part of a greater strategy to restructure their operations tend to lift in the short term, according to new research from CIMB Securities.
In the context of what the broker calls an "emerging theme" of impairments as a result of the commodities cycle downturn, those miners that announce the news to the market generally perform better over the next quarter providing they are financially healthy.
One possible reason for this, according to the broker, is that impairment charges are seen as "inflexion points" where management takes the opportunity to get rid of problem assets, signalling better performance in the future.
It can also be because firms are less driven to beat expectations during hard times and tend to make impairments that they can reverse in later periods to boost earnings, CIMB said.
However, the market is more likely react poorly over the longer term to distressed firms writing down their assets as the increase in leverage can damage their ability to refinance debt.
"The most highly leveraged firms can do the best, but the returns are on a short period – they've only recently made the announcement and its not on like a three-month period – and the returns aren't as reliable," CIMB's head of quantitative research Eben van Wyk told Eureka Live.
One company to announce an impairment provision this week was Uncapped 100 stock Saracen Minerals (SAR), which the gold miner says is to ensure its future profits are not overshadowed by legacy costs.
The stock has risen 4.9% to 15.7 cents since the miner made the $75-80 million provision on Tuesday after plunging 60.5% to 15 cents in the year-to-date. Analysts polled on Bloomberg have an average one-year forward target price of 20 cents.