Newcrest shares dive as it writes down A$6bn in assets

7th June 2013 By: Esmarie Iannucci - Creamer Media Senior Deputy Editor: Australasia

PERTH (miningweekly.com) – The share price of Australia’s largest gold miner Newcrest Mining continued its free fall on Friday, as MD and CEO Greg Robinson announced the outcomes of the group’s strategic review, which includes a potential asset impairment of up to A$6-billion.

ASX- and TSX-listed Newcrest shed nearly 13% of its value between Tuesday and Thursday and plunged by a further 8.3% on Friday, when the company announced its update to the market. Stock hit an eight-year low of A$11.40 a share.

The Australian Securities and Investment Commission confirmed that it was looking into the price move. “We are aware of the trading and we are in discussions with the ASX regarding the price move, which is in accordance with our usual procedures where there have been large moves in share prices.”

Robinson told shareholders that Newcrest was reviewing the carrying value of its assets in light of materially lower gold prices. While the full assessment of the carrying value would only be completed after June 30, the latest estimate puts the impairment in the range of A$5-billion to A$6-billion.

The impairment would not affect its cash flow, but the reduction in the asset book value would have a material impact on the 2013 financial year statutory accounts.

Robinson said Newcrest’s focus remained on overall cost and capital reduction, while ramping-up production from its two major low-cost operations, namely Lihir and Cadia Valley.

The strategic review identified a number of key actions to assist in this strategy, including reducing 2014 capital expenditure from the planned A$1.5-billion to around A$1-billion, while exploration expenditure would decrease from A$160-million to around A$85-million.

The gold miner would further eliminate high-cost ounces from its production profile and shift to stockpile use at its Lihir operation, while also undertaking cost reduction programmes across the company, including rationalising its corporate and support functions by closing the Brisbane office at the end of September.

Furthermore, Newcrest will focus on reducing spending in a number of other areas, including project studies and exploration, and would withhold payment of a final dividend for the 2013 financial year, allowing the company to maintain a strong balance sheet and continued investment in the high-return Cadia East panel cave two development.

“Our focus on gold, long-life, low-cost operations, mainly in Australia and the Asia Pacific region, remains firmly in place. The decisions today represent an acceleration of our cost and capital reductions that have been in action over the last 12 months,” Robinson said.

He added that the strategy would place Newcrest in a strong position in the current challenging market environment.

Chairperson Don Mercer added that Newcrest was responding decisively to the change in the gold price, gold equities and other market factors, to ensure that cash flow was maximized should prices remain at current levels, while also preserving options to respond, should conditions improve.

Newcrest has maintained its production and cost guidance for the 2013 financial year, with gold production expected to be between 2-million and 2.3-million ounces.