Using an especially sharp axe, Barrick Gold (GOLD -0.81%) whacked the value of its gold reserves by an amount much larger than expected, meaning projects that were previously marginal for development will now be taken offline. In particular, its massive Pascua Lama project in Chile that was temporarily suspended only to be indefinitely delayed in October will suffer from additional write-downs in the fourth quarter.

Saying it was taking a conservative approach to pricing, the world's biggest gold miner said it will recalculate its reserves assuming gold at $1,100 per ounce, well below the $1,500-per-ounce level it used last year and a good 13% below the current price of $1,271 per ounce. Analysts had expected Barrick to use a $1,200-per-ounce floor, a price the miner had said would cause its reserves to drop by less than 10%.

Miners usually recalculate their reserves once a year in the first quarter and release the updates with their year-end results. Last year, No. 2 Newmont Mining (NEM -1.07%) used a $1,400-per-ounce price for its reserves while Kinross Gold (KGC -1.01%) used $1,200, and though the reset lower will impact a number of Barrick's projects in terms of production, if other miners follow suit and use equally conservative estimates, the impact on them could be far more dramatic.

With an outlook for all-in sustaining costs of between $900 and $975 per ounce, Barrick has some fairly low costs already, though Yamana Gold (AUY), at around $730 an ounce, is among the lowest in the industry. Other miners, however, will find the lower level troubling.

IAMGOLD has an AISC of $1,216 per ounce and AngloGold Ashanti has total costs of $1,155 per ounce; others such as Goldfields and Kinross are just below the $1,100-per-ounce floor Barrick has set. All-in sustaining costs is a relatively new metric miners are using to capture all the costs associated with a project.

The price of gold tumbled throughout last year, forcing miners to slash costs by selling assets, firing workers, and cutting their dividends. Australia's Newcrest Mining suspended its dividend payment entirely, Newmont cut its dividend by 18%, and Barrick slashed the payout 75% in August. It's also taken write-downs on Pascua Lama totaling more than $5 billion, and promises it will have to take additional cuts when it releases fourth-quarter earnings in mid-February. The $8 billion project has been stalled over environmental concerns as well as the impact it will have on water supplies for the indigenous tribes that rely upon them. 

Where it had some 140 million ounces of reserves based on last year's price, Barrick has shed assets over the past 12 months, including three projects in western Australia, one of which it agreed to sell just the other day. If its reserves fall substantially, it could result in additional impairments of the value of the asset.

Barrick did say it met its 2013 gold production forecast of 7.0 million to 7.4 million ounces, and its reserve price may indeed just be a conservative estimate, so it doesn't have to continually revise downward the expected price as it did last year. Analysts themselves are all over the map on where they think gold's price is headed, and most are above the $1,200-per-ounce level they thought Barrick would target.

The move by the miner, though, indicates it's a bruised gold producer and has resorted to licking its wounds. By slashing the reserve price as steeply as it has, however, it gives Barrick Gold an easy way to contain expenses that can always be given the green light later should the price of gold rise. I remain bullish on gold as an investment, but think physical gold is still the better option than the capital-intensive mining business that by needs must operate in politically volatile countries.