The dividend drought for shareholders in gold miner Newcrest Mining (NCM) continues, but judging from comments in yesterday’s annual profit report from senior management, it could also be close to ending.
At the same time the company revealed a major change of heart – it will not longer sell its Telfer gold mine in Western Australia and has instead decided to invest more to improve its efficiency.
Newcrest yesterday revealed a much improved underlying full year profit of $515 million and 19% up on the $432 million underlying profit recorded for 2013-14.
Unlike the past two years when huge impairments created multi-billion dollar statutory losses, Newcrest reported a fairly ‘clean’ result.
In fact a previous asset impairment was reversed with $376 million of value restored at Telfer thanks to the weaker Australian dollar. Minor impairments were recorded on non-core assets in West Africa and Hidden Valley in Papua New Guinea.
That meant the statutory profit of $546 million for the 2015 financial year was dramatically better than last year’s $2.22 billion loss.
Newcrest has not announced a dividend since February 2013, prior to the significant slump in gold prices that year.
“Our priority remains reducing our debt as we go forward,” but the board would consider restarting dividends when the balance sheet is in better shape, Chief Executive Sandeep Biwas said yesterday.
“We are stepping closer to that,” he told a media briefing. "I do want to return to paying a dividend, but it has to be at the right time."
The company is focusing on paying down its high debt and investing in growth.
That focus has seen the company’s gearing ratio fall from 33.8% a year ago to 29.3% by June 30.
NCM 1Y – Newcrest returns to statutory profit
Newcrest also said it would begin reporting its results in US dollars from this financial year. It will join the likes of Woodside, QBE, Ansell, BHP Billiton and Rio Tinto – all internationally focused groups.
The improved profit performance caps a year that was clearly better than the 2014 financial year for Newcrest; the company produced 1% more gold, 12% more copper and all-in sustaining costs were 4% lower in fiscal 2015 compared to the 2014 financial year.
Gold prices have fallen 14% in US dollar terms over the past year, but Australian miners like Newcrest have enjoyed some protection because of the sliding local currency.
For example, the Comex gold futures were around $US1,113 an ounce on Monday morning (more than $A1,500).
But Newcrest will forgo that benefit when it starts reporting in US dollars, although Australian shareholders will still benefit if, and when, dividends are resumed.
Newcrest says it expects to produce up to 2.6 million troy ounces of gold this financial year, and that it remains focused on the development of new or expanded mines on land it already owns, bot buing new mines.
Newcrest also said it wouldn’t sell its Telfer mine, but would instead invest more money to extend the life of the Australian operation. Last February, the company told investors it was reviewing its options for the mine, including a possible sale. The company now thinks it can get more value by running the mine itself.
Another reason would be the low prices for gold mines given the fall in prices in the past year and the flood of unwanted mines and prospects onto the market. This looks like a case of Newcrest making a virtue out of a financial necessity.
Newcrest shares rose more than 4% to $11.44 yesterday.
