Don Mercer, the chairman of struggling gold miner Newcrest (NCM), has strongly defended the company’s performance in his chairman’s comments in the 2012-13 annual report released yesterday, and made it clear that senior executives face the prospect of receiving lower bonuses and other incentive payments this year.
And Mr Mercer also indicated that while the company remain positive about the prospects for gold, it won’t hestiate to cut again if conditions worsen.
"We continue to believe that the outlook for gold is positive. Asian demand for gold is very strong. However, predicting the gold price is a personal judgement.
"Experienced gold investors view gold shares as a fundamental part of their portfolio as a hedge against external uncertainty.
"Newcrest has the flexibility to make more changes should the gold price decline further. On the other hand, should conditions improve, we retain a range of options for growth and better margins having reset the company’s cost base," he said.
Mr Mercer added, ‘’…regrettably many employees lost their jobs as a result of the ensuing changes. Executives and our people in management roles will receive nil to very low incentive rewards this year".
Newcrest last month posted a massive annual net loss of $5.8 billion on the back of $6.2 billion in asset write-downs and restructuring costs and a disclosure scandal.
The company then announced that chief executive Greg Robinson’s annual pay would be cut by 27% to $2.73 million, down from $3.69 million in the previous year as his short-term bonuses were cut by $700,000.
The 2013 annual report showed Newcrest’s executive managers also had their pay cut in 2013, but Finance Director Gerard Bond’s overall pay increased slightly, from $1.64 million to $1.73 million.
Mr Robinson, Mr Bond and other executive managers will not receive pay rises in fiscal 2014.
NCM YTD – Newcrest flags more pay cuts
Mr Mercer said in his chairman’s comments that, "like many other gold mining companies, Newcrest reviewed the carrying value of its assets in response to the rapid decline in the gold price.
"This resulted in significant non-cash accounting charges of $6.2 billion after tax, relating to asset impairments, the write-down of higher cost assets and inventory, a write-down of the investment in Evolution Mining Limited and business restructuring costs.
"A large part of the write-downs related to ‘goodwill’ recognised on the acquisition of former Lihir gold limited assets. ‘goodwill’ for a mining asset has always to be written off eventually."
The Lihir orebody, in terms of size and grade, is one of the great orebodies of the world.
"We are very positive about Lihir and the improved contribution it is now making to Newcrest. Newcrest has the longest reserve life of its global peer group.
"For other parts of the business, such as Telfer and Hidden Valley, the write-downs reflect the materially lower gold price, reduction in valuation multiples and the resulting fall in the market value of these assets.
"Newcrest remains well placed financially, with a sound balance sheet and investment grade credit ratings. Gearing has increased to 29.1 percent, mainly due to the investment in projects at Cadia East and Lihir, as well as the recent impairments. This level is acceptable in the present circumstances. our longer-term objective is to keep gearing under 15 percent.
"This provides a buffer for the company to weather significant adverse events such as the plunge in metal prices, which occurred in 2013.
"From a liquidity point of view, as at 30 June 2013, Newcrest had around $950 million in cash and undrawn bilateral bank facilities," Mr Mercer reassured shareholders.
Newcrest shares ended at $12.03, down more than a $1 or 8.1% as world gold prices fell in Asia after Friday’s falls in US markets.
