Newcrest Mining Limited
(ASX:NCM) confirmed its winter (plus spring, summer and autumn) of discontent this week as it crashed to a full year net loss of $5.78 billion, savaged by the sharp fall of the gold price and write downs to the tune of $6.23 billion. A year ago the gold miner with operations in Australia, PNG, Indonesia and Ivory Coast posted a $1.17 billion profit, a fair reflection of the vastly different operating environment it found itself in throughout fiscal 2013. At the end of June 2012 Newcrest shares were trading around $22.60. They were languishing at $9.30 towards the end of June this year. Their most recent closing price was $12.10, off the June floor yet still a long way from the more prosperous times as investors lose their faith in the formerly safe haven asset that is gold. Gold miners have been boxed into a corner and pummelled by prices, which have fallen 20 per cent since the start of the year, marking an abrupt halt to a decade long charge in the gold market. Now the bull has had its horns clipped and the likes of Newcrest have been forced to respond by way of cost cutting; be it pulling back capex, closing mines, cutting jobs or reducing executive pay packets.
Newcrest is the world's fourth-largest gold miner by market value behind Goldcorp, Barrick Gold and Newmont Mining. It is the largest in Australia, where total production of the precious metal is only outpaced in volume terms by China. Earnings in the financial year just past were also affected by disruptions at multiple operations, contributing to an 8 per cent decline in its annual production of 2.11 million ounces. Its Lihir operation in PNG was stalled by an electrical fault as well as a landowner dispute, while its Gosowong mine in Indonesia was stunted by heavy rainfall. The Lihir operation, acquired as part of a $9.5 billion takeover of Lihir Gold three years ago, was at the centre of Newcrest’s write down blitz, accounting for more than half of the $6.23 billion. Newcrest also wore impairment charges against three other mines as well as its stake in Evolution Mining Limited
(ASX:EVN), an asset secured during a peak in commodity prices. Other miners are also feeling the brunt of writing down assets purchased during commodity price spikes, including Rio Tinto Limited
(ASX:RIO), OZ Minerals Limited
(ASX:OZL) and Evolution. All of these companies have attributed the writedowns to price falls, and the pain is particularly acute for the likes of Newcrest, given gold is Australia’s third biggest export.
Newcrest said it expects to produce 2 million to 2.3 million ounces of gold in the current fiscal year, and 75,000-85,000 tonnes of copper. It has declined shareholders a full year dividend and made no statements as to when it might be likely to declare its next payout. The stated focus is a 20 per cent cut in spending on gold exploration and new project spending, on top of hundreds of job cuts and even the closure of an Australian office. Doom and gloom in the short term, but the miner must surely be commended now for adapting to the vastly different circumstances it is forced to operate in. Austerity is the new fashion in resources, and Newcrest is striving to make everything fit and avoid further pain come next reporting time.
Economic news
Chinese exports and imports grew strongly in July, boosting confidence that the economy may be stabilising after a shaky first half of the year.
Exports rose 5.1 per cent year on year, rebounding from a 3.1 per cent drop in June. Imports increased 10.9 per cent year on year, up from a 0.7 per cent fall in June.
Commentary
Newcrest CEO Greg Robinson gave some insight into the hopes of the gold miner in the financial year ahead when he offered these sentiments in its full year profit report:
“Newcrest remains committed to a strong balance sheet and is managing activity in the lower gold price environment with the objective of being free cash flow neutral or positive in the 2-14 financial year, with all capital expenditure, exploration programs and corporate overheads expected to be funded from operating cash flow.”
Profit results
Rio Tinto Limited
(ASX:RIO) revealed a steep drop in its first half net profit, slumping 71 per cent to $1.92 billion. The result was hit by falling commodity prices over a period in which market commentators heralded the end of the mining boom. While Rio has forecast a volatile medium-term economic outlook it did achieve $1.5 billion cost savings in the first six months of the year.
Mirabela Nickel Limited
(ASX:MBN) has widened its first half loss by 14 per cent on falling nickel prices and a spike in currency exchange costs. The nickel miner reported a $US68.9 million loss for the six months to the end of June, including a $32.85 million hit on foreign exchange losses and a 26 per cent fall in revenue.
Worleyparsons Limited
(ASX:WOR) has booked a full year net profit of $322 million, down 7 per cent on last year. Revenue in the year to June 30 was $8.8 billion, compared to 7.4 billion last year. CEO Andrew Wood says continued uncertainty in the market is likely moving in to 2014.
OZ Minerals Limited
(ASX:OZL) has posted a $269 million half year net loss, driven by $231 million in write downs on its assets. Slumping gold and copper prices are behind the write downs, however OZ has forecast improved performance from its flagship Prominent Hill mine in South Australia.
Bradken Limited
(ASX:BKN) has posted a full year net profit of $66.9 million, a 33 per cent decline on last year. The result includes a one-off pre-tax charge of $30.4 million relating to Federal Court proceedings associated with the Norcast acquisition, which Bradken says will be written back to profit if the company's appeal is successful. Revenue in the same period was $1.3 billion, a 10 per cent drop compared to last year.
Other Resources headlines
Rio Tinto Limited
(ASX:RIO) says it would be interested in blocks one and two of Guinea's giant Simandou iron ore deposit if they were up for sale.
Also this week, Rio Tinto owned Gove Operations has signed a memorandum of understanding with the people of northeast Arnhem Land to carry out a feasibility study for bauxite mining on their land.
BHP Billiton Limited
(ASX:BHP) investor Evy Hambro has warned the mining giant that spending billions on a new potash expansion would be a misguided move for the company at a time when potash prices look set to fall.
Fortescue Metals Group Limited
(ASX:FMG) Chairman Andrew Forrest says the company will continue efforts to sell a minority interest in its Pilbara port and rail assets, after the lower dollar and stronger iron ore price sparked speculation that Fortescue would decide to retain the assets.
Woodside Petroleum’s Limited
(ASX:WPL) role in Israel's Leviathan gas field is reportedly under threat as the project's potential local partners enter talks to export the field's gas to a number of neighbouring countries.
Karoon Gas Australia Limited
(ASX:KAR) has successfully raised $150 million through an underwritten placement, helping to shore up its balance sheet amid farmout talks.
Alacer Gold Corp – CDI
(ASX:AQG) has announced changes among its executive ranks, including the promotion of CFO Rodney Antal to the role of Chief Executive Officer. Mr Antal will replace the retiring David Quinlivan, with current senior VP of finance Mark Murchison to act as interim CFO.
Lynas Corporation Limited
(ASX:LYC) has appointed Jean Claude Steinmetz as chief operating officer, to be based in Malaysia and oversee operations at its Advanced Materials Plant.
