Newcrest Mining Ltd. (NCM), Australia’s largest gold producer, will write down the value of its assets by as much as A$6 billion ($5.7 billion) after a slump in prices, sending its shares down to the lowest in eight years.
The size of the charge on mines including Hidden Valley in Papua New Guinea, Bonriko in Ivory Coast and Telfer in Australia compares with Newcrest’s market capitalization of A$9.5 billion at the close and represents about 25 percent of the book value of its assets as of Dec. 31, according to a statement today from the Melbourne-based company.
The write downs and a plan to cut about 250 jobs were “painful,” though a necessary response to gold’s decline, a higher Australian dollar and rising costs, Chief Executive Officer Greg Robinson told analysts on a conference call.
Newcrest, the worst performing of Australia’s 20 largest companies this year, flagged it probably won’t pay a final dividend for fiscal 2013, will cut corporate costs by 20 percent and close its Brisbane office, which has about 100 staff. Investors are fleeing the industry amid rising mining costs, project delays and the slide in the price of gold, which fell into a bear market in April.
“Newcrest are perennial operational disappointers,” Michael McCarthy, chief market strategist at CMC Markets Australia, said by phone. “Throw in a poor outlook for the gold price, overall I suspect investors today will be focusing on that writedown and giving them very little of no credit for any potential cost savings.”
The stock closed 7.6 percent lower at A$12.35, the lowest since May 31, 2005. It earlier plunged as much as 15 percent.
Gold for immediate delivery was little changed at $1,414.94 at 4:09 p.m. in Sydney. The metal is trading 27 percent below the record $1,921.15 set in September 2011.
The proposed writedown will have a “material impact on the 2013 financial year statutory accounts,” and follows a review of strategy in the wake of gold’s slump, the company said in the statement. Capital expenditure will be cut to A$1 billion from A$1.5 billion, while exploration will be cut by almost a half to A$85 million, the company said. Restructuring costs will include a one-time charge of as much as A$75 million, it said.
“While this plan slows production growth in the near term, it increases cash flow,” Robinson said.
The company is forecast to report net income of A$556 million in the year ending June 30, according to the average of 15 analyst estimates compiled by Bloomberg. This compares with A$1.12 billion reported last year.
Newcrest, which has lost 15 percent of its market value this week, has been downgraded in recent days by banks including Credit Suisse Group AG, Citigroup Inc. and UBS AG.
The Australian Securities and Investments Commission is in discussions with ASX Ltd., the operator of the country’s largest stock exchange, “regarding the price move,” in accordance with usual procedures for large moves in share prices, the regulator said in an e-mailed statement.
“Some sections of the market were clearly aware of something happening, though they may not have had the exact same details,” said Prasad Patkar, who helps manage about A$1.2 billion at Platypus Asset Management Ltd. in Sydney. Patkar made a complaint to ASIC.
“You never get a situation where, out of the blue, the entire street wakes up and decides to downgrade like that,” said Patkar, who doesn’t hold Newcrest shares.
Decisions made by analysts had been based on information supplied in company filings and a presentation by Robinson to a Bank of America Merrill Lynch conference in Barcelona last month, Newcrest spokeswoman Kerrina Watson said. “There has been no selective briefing of analysts,” she said.
The writedowns include all A$3.6 billion of goodwill in Lihir and A$200,000 in Bonikro and impairments totaling as much as A$2.2 billion for Telfer, Hidden Valley and Bonikro, Robinson told analysts.
Newcrest’s debt facilities do not include ratings triggers or gearing covenants, the company said. The producer has available debt facilities falling due in 2017 of $2.6 billion, according to data compiled by Bloomberg.
The company’s bonds slumped 6.5 percent this quarter as of yesterday, more than twice the average decline for debt from investment-grade metals, mining and steel companies, according to Bank of America Merrill Lynch index data.
Production in 2014 will be 2 million ounces to 2.3 million ounces, the company said. It cut its 2013 production forecast on March 28 by more than 10 percent to a range of 2 million ounces to 2.15 million ounces. Newcrest still expects to add between 5 percent to 10 percent to production each year, as it expands Cadia East in Australia and Lihir in Papua New Guinea, Robinson said on the call.
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