Newcrest Mining Ltd. (NCM), Australia’s largest gold producer, is facing scrutiny from regulators about its disclosure of a possible A$6 billion ($5.7 billion) writedown after bullion slid into a bear market.
Newcrest, which flagged the charge on June 7 as it halted some of its higher-cost gold mines, received a letter the same day from ASX Ltd., operator of Australia’s main stock exchange, asking why it didn’t halt trading before disclosing the cost, according to a June 12 response from the company. Newcrest’s market value has fallen more than A$2 billion this month to A$8.7 billion. It fell to an eight year low today.
The Australian Financial Review reported June 15 that Prasad Patkar, who helps manage about A$1.2 billion at Platypus Asset Management Ltd., got an e-mail from an unidentified equity analyst predicting how much gold Newcrest would produce before the company’s official announcement. The Australian Securities and Investments Commission is in discussions with ASX, Andre Khoury, a spokesman for ASIC said today.
Kerrina Watson, a Melbourne-based spokeswoman for Newcrest, had no comment when contacted by phone on June 15, and referred to the company’s June 12 statement.
“Newcrest treats its disclosure obligations seriously and engages with the investment community in a manner consistent with these obligations,” the Melbourne-based company said.
Newcrest tumbled 15 percent in the week ended June 7, when it announced the likely A$5 billion to A$6 billion charge and said production would be relatively flat next year as it stopped certain high-cost operations. The company had already flagged the possibility of production cuts and announced a review of all activities in April. The shares fell 1.9 percent to close at A$11.35 in Sydney, as Australia’s benchmark S&P/ASX 200 index rose 0.7 percent.
“We are aware of the trading and are in discussions with the ASX,” ASIC’s Khoury said by telephone.
ASIC would determine whether action will be taken as a result of initial inquiries, Matthew Gibbs, a spokesman for ASX said by phone today.
“ASX remains available to assist ASIC in any inquiry that ASIC might be undertaking,” Gibbs said from Sydney. “Any further action is entirely a matter for ASIC as the regulator.”
Credit Suisse Group AG, Citigroup Inc. and UBS AG cited likely lower output among the reasons for cutting their ratings on Newcrest in the three days before it announced the result of the review.
Daniel Seeney, an analyst at Citigroup who cut his rating on Newcrest, said Monday he could not provide any comment on the issue. Credit Suisse spokeswoman Liz Rudall and UBS spokeswoman Erica Borgelt, declined to comment.
“Some sections of the market were clearly aware of something happening, though they may not have had the exact same details,” Patkar said in a June 7 interview with Bloomberg News. He declined to comment yesterday on the AFR story.
The scale of Newcrest’s writedown compares with Rio Tinto Group’s $14 billion charge last year against the value of some of its aluminum and coal operations. In 2009, Freeport-McMoRan Copper & Gold Inc. (FCX:US) wrote down the value of its mine assets by $13.1 billion.
Gold has retreated 17 percent this year, making it the third-worst performer on the Standard & Poor’s GSCI gauge of 24 raw materials, curbing revenue for gold miners. While Newcrest plunged 49 percent this year, Barrick Gold Corp. (ABX) has lost 44 percent and Newmont Mining Corp. (NEM:US) dropped 29 percent.
UBS cut Newcrest to sell from neutral on June 4, citing expected production cuts. Credit Suisse downgraded the stock to underperform from outperform on June 6 amid concern it will lower output and halt expansions. Citigroup cited a shift to focusing on returns and cash generation at the expense of production when it cut Newcrest to sell from neutral on June 5.
Cathy Moises, senior analyst at Evans & Partners Pty Ltd. and the most-accurate Newcrest analyst tracked by Bloomberg, raised the company’s rating to neutral from negative on June 12 even as some banks cut their ratings. Of the five most-accurate analysts tracked by Bloomberg, only one rates Newcrest negatively. Moises declined to comment yesterday.
Gold, which tumbled into a bear market in April, is on track for the first annual drop since 2000. Some investors are losing faith in it as a store of value as the U.S. economy improves and speculation builds that the Federal Reserve may back off quantitative easing. Newcrest said April 23 that it was reviewing its operations because of rising costs and falling prices.
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