Markets: No rest for Newcrest

Investors will be looking beyond today's Newcrest results towards continuing efforts from the gold miner to cut costs in the wake of a declining spot price.

Sometimes no matter what you do nothing can go right. So it is with Australia’s biggest gold miner Newcrest. The worst performing stock among the 50 biggest companies this year has tried to dispel questions over its disclosure practices by ensuring anything that could possibly affect its earnings or share price is announced publicly. And in today's results the company announced a worsening of its writedown in the value of its gold assets, up from Thursday's market update estimate of $6.2 billion, to $6.23 billion.

The 6.1 per cent decline in Newcrest’s shares this month adds to the 48 per cent fall in the stock in 2013. The company’s market value has been almost halved to $8.79 billion in 2013. 

Hedge funds are trimming their gold exposure. Money managers have cut their net long exposure to gold by 27 per cent, according to the US Commodity Futures Trading Commission. Spot gold, down 21 per cent this year, is now at $US1328.639 an ounce as of 0905 AEST. That’s unsustainable for the gold mining industry, Gold Fields’ chief executive Nick Holland has warned. Bullion must rise to $US1500 an ounce for the gold industry to be sustainable, says Holland.

Technical analysis proffers little hope for that to happen. Forex Capital Trading says gold is stuck below its 200-day moving average. That means the impetus for the gold price is for the metal to head lower rather than higher – even as low as $US1180.50 which happened June 28, the lowest price for gold since August 2010.

Newcrest results today may do little to dispel gold sceptics. It may have already accounted for the worst ever scenario for the value of its assets with its Friday disclosure. But Moody’s warned last month Newcrest may face another credit downgrade should Newcrest fail to reduce costs. The gold miner’s rating was cut to Baa3 – the lowest investment grade rating – on July 29 which “reflects our expectation for weaker operating and financial metrics over the next two to three years”.

That does not give a lot of hope to those who thinks it’s time to buy.

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