Consecutive Billion Dollar hit for Newcrest

Share CentreReview: Troubling news for Newcrest new chief executive, Sandeep Biswas, as the gold mining company takes yet another multibillion dollar hit this year. Australia’s biggest gold producer plunged 6.2 per cent in response to this year’s writedown on the value of the Lihir mine and gold’s decline to below $ US1300 an ounce.

The Lihir mine, in Papua New Guinea, which was acquired by Newcrest in 2010 in a $ 9.5 billion deal, has struggled to achieve an annualised rate of 700,000 ounces due to operational shortcomings. With Newcrest disclosing that it would be taking new asset impairment charges of between $ 1.5 billion and $ 2.5 billion after tax, Share Centre analysts agree that the Lihir mine operation is again the main culprit for the Australian company’s writedown.

The fall in gold prices, saw Newcrest shares tumble 71c to $ 10.78, taking $ 544 million from the group’s already distressed market value.

Newcrest has spent $ 1 billion upgrading Lihir in the past three years and Mr Biswas says it is a “fabulous ore body,” with an estimated mine life of 50 years, by far the longest in Newcrest’s portfolio. Speaking in his first media conference since taking over as chief executive, Mr Biswas told reporters “Yes investors are maybe frustrated, they have been expecting different performance profiles in the past,” “I am not going to make any predictions, I would rather be judged on performance but we are very, very focussed in a material way on making sure we can improve the performance there.”

Mr Biswas, who replaced Greg Robinson on July 4, said he had a three-pronged strategy to turn Newcrest around, being operating discipline, a focus on cash and profitable growth. “It means getting back to the basics of operating a mining company,” Mr Biswas stated. “Cash is king, and time is money, and these are the things that are being pushed throughout the organisation.”
The Share Centre said last night’s news of Newcrest’s hit comes days after a class action has been launched against the gold miner over last year’s major write down which sent shares plunging.

Law firm Slater & Gordon has filed proceedings on behalf of a significant number of retail and institutional shareholders who brought shares between August 2012 and close of trade on June 6 2013. Over this periods Newcrest shares fell 45 per cent.

The claim alleges that Newcrest had no reasonable grounds for the gold production guidance it released in August 2012.

Despite Newcrest having already reached an agreement with the Australian Securities and Investments Commission (ASIC) to pay a $ 1.2 million penalty for disclosing sensitive information to analysts before releasing it to the market, Slater & Gordon’s senior class action lawyer Ben Phi said “While our clients welcome Newcrest’s admissions, we allege that these contraventions form part of a wider course of misconduct.”

A statement made by the Australian gold miner said “The proceeding raises issues beyond the subject matter of the ASIC settlement referred to in Newcrest’s 28 June 2014 announcement. Newcrest intends to vigorously defend the proceedings”.

Share Centre analysts noted that mid-morning in Australia today, Gold was fetching $ US1291 per ounce, despite being above $ 1300 per ounce since June 20.
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