It has been anything but a golden run for Australia’s largest listed gold producer, and this week Newcrest Mining Limited
(ASX:NCM) drove a stake through shareholders hearts by confirming between $5bn and $6bn of writedowns on mines in Papua New Guinea, Australia and Africa, to be taken in its August full-year results. On top of $6 billion in writedowns, Newcrest has cut 250 Australian jobs and plans to close its Brisbane office. Putting the icing on a very bitter cake, nor will it pay shareholders a final dividend. On the latest announcement the company’s share price tumbled to a nine year low, the culmination of a three day stock battering of 19 per cent that left Newcrest’s market value at $9.47 billion. It was over $30 billion just two years ago when CEO Greg Robinson commenced his tenure. Poisoned chalice anyone?
The struggles of Newcrest have come amid a backdrop of gold price falls, with the precious metal seeing its worst monthly fall in thirty years in April. The company has struggled to meet production guidance while investors have favoured an alternate approach to gold buying; shunning share purchases and preferring direct access to the metal through exchange-traded funds. Chief Robinson says yesterday’s write down announcement is an acceleration of a strategy to focus on the lower-cost Lihir Island mine in PNG as well as the Cadia East mine in NSW. According to Robinson:
"Newcrest has been on this path for well over 12 months, and we've been talking about cost containment and stopping business-development projects and focusing on our core activities.”
Now, to the job cuts. In relieving 250 staffers from corporate offices in Brisbane, Melbourne and Perth, Newcrest will shave approximately $40 million of annual costs, allowing firstly for up to $70 million in one off cuts. Robinson says the cuts emanate from areas where Newcrest in not looking to create activity and also stated that he thinks there won’t be any need for more. Amid all the wreckage comes a changing of the guard. Newcrest's position as the nation's third-biggest miner after BHP Billiton Limited
(ASX:BHP) and Rio Tinto Limited
(ASX:RIO) has now been surrendered to Fortescue Metals Group
(ASX:FMG), confirming that the shine really has fallen off Australia’s one time resources golden child. And, just in case Newcrest needed anything else to worry about, it has now emerged the gold miner is under investigation by the corporate watchdog following accusations that the company briefed analysts prior to its massive write-downs.
THE LATEST:
Newcrest has officially denied it selectively briefed analysts in a formal response to the ASX. The gold miner says it first became aware of the information last Friday, the same day it revealed to the market it would be hit with large-scale writedowns, cancel its final dividend, cut back production, layoff staff and close its Brisbane office.
Economic news
Australia's trade balance maintained a surplus in April but narrowed considerably in the month, according to the Australian Bureau of Statistics. The nation's trade balance narrowed 95 per cent to $28 million. During the month, exports fell one per cent, while imports rose one per cent.
Mining capex has reached its lowest level in over a decade, according to the NAB business survey for May. Capital expenditure in mining sank 37 points to an index reading of negative 44 points. NAB’s chief economist Alan Oster highlighted a slowdown in labour intensive mining investment and weakness in gross national expenditure as instrumental in the banks decision to soften its GDP growth forecast to 2.3 per cent in the next financial year.
Commentary
Global Chief Economist of Saxo Bank, Steen Jakobsen offers FNN his thoughts on the direction policy makers should look as investment in the mining industry eases:
“... you have been in the right market at the right time. Now this market is turning, clearly Chinese data is indicating they have less growth, less demand for the commodities that come out of Australia. So the handover needs to be to the smaller and medium sized enterprises. And they are interesting enough- 80 per cent of the market- there are more small and medium sized enterprises than anything else in Australia. Will that happen? Not yet because they are not getting any help. They are exactly those companies that are having a hard time accessing credit- the same businesses that see an increase in bureaucracy, the same companies that have high union labour costs if they want to add additional employees. So what the government needs to do....is refocus Australia towards the small and medium because every job created in that sector is more productive, less capital intensive. “
To see more of Steen Jakobsen’s interview with FNN, click
here.
Meanwhile...across the sector.
BHP Billiton Limited
(ASX:BHP) boss Andrew Mackenzie is confident China's new leadership is re-balancing the economy and that demand for commodities will be sustained in the long term. Mr Mackenzie says BHP is positive enough about growth in its iron ore, coal, petroleum and copper pillars with the possibility of a fifth one being potash. Mr Mackenzie, who travelled to the UK from China, says he met with the Chinese Premier who was reassuring about the demand for resources.
Rio Tinto Limited
(ASX:RIO) is close to selling a large minority stake in Coal & Allied as well as holdings in some of its Queensland coal mines. Reports of the sale come 18 months after Rio took full control of Coal & Allied and also coincides with its efforts to offload its Canadian iron ore assets and its Ashton diamond mine in the Kimberley region of Western Australia. China's state-owned Shenhua and India's Aditya Birla Group are among companies reportedly considering bidding for the coal assets, which have an estimated value of $3.2 billion.
Lynas Corporation Limited
(ASX:LYC) is cutting costs in response to a fall in demand for its products and a decline in commodities prices. The rare earths miner recently began production at its refinery in Malaysia but now says the plant will operate at a reduced capacity due to subdued demand for its products. Lynas says prices this calendar year have continued to fall, although there are now emerging signs of stabilisation in some categories.
by Joel Spreadborough
