MARKETS SPECTATOR: Newcrest's market mauling

The 21 per cent plunge in the gold price is going to cost Newcrest Mining as much as $6 billion.

And it is costing investors. At 1024 AEST Newcrest shares had slumped 89 cents, or 6.7 per cent, to $12.47, after earlier falling as low as $11.40. The company has lost more than half its market value in the last 12 months. Its current market capitalisation is $9.56 billion, according to Bloomberg data.

Australia’s biggest gold miner told the ASX this morning it will take a $5-$6 billion impairment charge that “will have a material impact on the 2013 financial year statutory financial accounts”.

In 2014 Newcrest’s free cash will dry up after $1 billion of capital expenditure at current metals prices and exchange rates.

The spot price of gold has dropped to $US1,412.28 from $US1,790.40 on October 4, 2012, according to Bloomberg data.

As a result of this impairment charge, Newcrest’s gearing, net debt to assets, will increase to as much as 30 per cent from 21 per cent. The company says there are no gearing or ratings covenants in the company’s borrowings.

The Melbourne-based company may suspend mining operations at its higher cost mines: Telfer in Western Australia, Bonikro in the Ivory Coast and Hidden Valley in Papua New Guinea, the latter two being Newcrest’s smallest mines.

The Lihir mine in PNG, Cadia Valley in New South Wales and Gosowong in Indonesia are the company’s lowest cost mines.

The company will try to slash costs and cut spending. Capital expenditure in 2014 will be $1 billion instead of an earlier forecast of $1.5 billion. The company’s exploration budget will be slashed by almost half to $85 million from $160 million. Newcrest’s Brisbane office will close and it will try to cut 20 per cent of corporate costs.

These restructurings will result in charges of $50-$75 million that will be recognised in 2013.

Still, Newcrest is forecasting its gold production will be up 4 per cent year on year in the 12 months to June 30, 2013 to about 2.15 million ounces.