Like Ansell (ANN), Newcrest Mining (NCM) has managed to keep the market happy despite a timely warning of another big writedown which was confirmed yesterday in the 2013-14 profit announcement. It was the second year of big losses and write-offs in a row.
Newcrest issued its latest warning in late July, Ansell followed with one of its own a week later. Yesterday we saw those warnings pay off as the market accepted what would have normally been big shocks and seen the shares in both companies sold off.
Newcrest is Australia’s largest gold miner and has had a very troubled last year to 15 months – with writedowns and losses of close to $9 billion before tax (including the one announced yesterday), plus weak underlying earnings and a mining performance that only seems to have now stabilised.
On an after tax basis, the losses in the two years have topped the $8 billion mark. And for a second year, no dividend will be paid to suffering shareholders.
Despite that, the market liked the figures and the shares only ended down 0.8% at $11.11.
NCM 1Y – Newcrest weighed down by writedowns
The latest write-down (like the one the previous year) goes back to a big takeover – in this case to Newcrest’s takeover of of Lihir, the PNG based gold miner – several years ago which is continuing to erode Newcrest’s market reputation, balance sheet, gold production and earnings.
Yesterday’s 2013-14 results confirmed the size and impact of the July 31 write-down at Lihir and a couple of other of the company’s troublesome gold mines, but it also told us that operationally the company may be back on track under new management and board members.
The bottom line for Newcrest in 2013-14 was a $2.2 billion full year net loss off the back of those previously flagged write-downs.
The result includes $2.4 billion in asset impairments, the bulk of which is related to its Lihir mine in Papua New Guinea.
Newcrest Mining though reported an underlying profit of $432 million for 2013-14.
It is an improvement on the $5.8 billion loss reported for 2012-13. The warning of write-downs which led to that loss and the way it was handled saw Newcrest lose credibility in the minds of many in the market and among regulators. It was heavily fined for the way it announced the warning and briefed some analysts. It saw changes in senior management and the board.
From yesterday’s commentary from the company, it could be argued that the company now sees better times ahead. It is definitely trying to portray an aura of competence at the management level, although another production downgrade (say, because of further problems at Lihir), will see a sell-off and investors turn dark on the company again.
Newcrest is now predicting a better 2014-15, in which it will be cash flow positive with an average predicted gold price of $US1,250 an ounce (it’s just over $US1300 an ounce now).
CEO Sandeep Biswas said in yesterday’s statement, “The Company’s improved operating performance in FY14 shows progress in productivity improvements and cost reductions."
"These initial improvements enabled the company to maintain its underlying profit and profit margins notwithstanding a lower gold price, and deliver free cash flow of $133 million for the year.
"Asset value impairments of $2.4 billion after tax were the major drivers of a statutory loss for the year of $2.2 billion. The most significant component of the write-downs related to Lihir.
"While we have realised some initial operating improvements, I am not satisfied with either the current operating performance or the cash generation of the business.
"Looking ahead, the Company is firmly focused on realising the potential of its assets. A Company-wide improvement program has been initiated, which includes a major review at Lihir.
"We expect Group production this year to be similar to that in financial year 2014 as we ramp up Cadia East and make improvements at Lihir which will lay the foundations for future production growth,” Mr Biswas said.
The company said it had $A1,808 million in cash and undrawn, committed bank facilities at June 30.
