Newcrest May Extend Cost Cuts After $5.7 Billion Full-Year Loss

Newcrest Mining Ltd. (NCM), Australia’s largest gold producer, will make additional cost cuts should prices decline further after booking a record full-year loss on a A$6.2 billion ($5.7 billion) writedown.

The net loss was A$5.78 billion in the 12 months ended June 30, from net income of A$1.18 billion a year earlier, the Melbourne-based company said today in a statement. The result missed the A$4.87 billion loss average of 7 analyst estimates compiled by Bloomberg.

“If the gold price was to fall dramatically, we would continue to cut costs, continue to cut capital expenditure and there are other levers we can pull,” Chief Financial Officer Gerard Bond told reporters today on a conference call.

Gold producers have announced at least $26 billion of writedowns in the past two months after the metal’s steepest quarterly drop in London in more than nine decades. Newcrest, which will trim spending on capital projects in fiscal 2014 by almost half to A$1 billion, first flagged the writedown in June and confirmed the numbers last week.

“They have got everything on the table now,” analyst Vince Pisani at Shaw Stockbroking Ltd. said by phone. “The writedowns were made pretty clear last week.”

Newcrest, the worst performer this year among Australia’s 50 biggest publicly traded companies, rose 7.9 percent to A$12.39 in Sydney trading, the most since July 12. It has declined 44 percent this year. The benchmark S&P/ASX 200 Index rose 1.1 percent.

Cut Costs

The producer said reducing costs will be a priority over the next 12 months, particularly at its Hidden Valley mine in Papua New Guinea, where high costs and lower production were “unacceptable,” according to Newcrest.

“The medium term outlook for the company’s production and costs really depends, as we’ve stated, on market conditions, which at the present time remain volatile,” Chief Executive Officer Greg Robinson said today on a separate conference call with analysts.

Moody’s Investors Service last month cut its rating of Newcrest to Baa3, the lowest investment grade rating, from Baa2 and said the company could face a further downgrade if it fails to reduce costs.

Newcrest’s operations are projected to be free cash flow neutral or positive this fiscal year at a gold price of A$1,450, or $1,335, Robinson said. Gold prices may trade at $1,358 an ounce in 2014, according to the average of analysts’ estimates compiled by Bloomberg. Spot gold traded at $1,329.83 at 16:05 in Sydney.

‘Tough Times’

“If we see tapering come to fruition, that will probably lift the U.S. dollar and weigh on gold further,” said Stan Shamu, a Melbourne-based market strategist at IG Markets Ltd., referring to speculation that the Federal Reserve will scale back U.S. bond purchases. “It might be tough times for Newcrest.”

Newcrest must deliver on its forecast of full-year gold output of 2 million ounces to 2.3 million ounces in the 12 months to June 30 to help restore the company’s reputation, Robinson said. “People feel that we haven’t delivered against those objectives,” Robinson told reporters.

The Australian Securities and Investments Commission is examining a drop in Newcrest’s share price ahead of its June 7 announcement on the writedown. Credit Suisse Group AG, Citigroup Inc. and UBS AG were among banks that cut their ratings on Newcrest in the three days before its statement.

Newcrest has said it didn’t selectively brief analysts ahead of the announcement and has appointed Maurice Newman, a former ASIC chairman, to conduct its own internal review.

“It’s fair to say we are a little more circumspect about how we engage,” Bond told reporters on the call.

Newcrest plans to remove its secondary listing on the Toronto Stock Exchange this quarter, the company said in its statement. “The anticipated benefits have not been realized,” Newcrest said.

To contact the reporter on this story: David Stringer in Melbourne at dstringer3@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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