Moody's downgrades Newcrest after writedowns

Ratings agency cuts issuer rating, senior unsecured rating to Baa3 and declares outlook negative.

Moody's has cut Newcrest Mining Ltd's issuer rating and senior unsecured credit rating to Baa3 and declared its outlook as negative, after the gold miner last month announced a shock $6 billion in asset writedowns.

The ratings agency said its downgrade from Baa2 to Baa3 affected about $2 billion in debt securities.

"The downgrade to Baa3 primarily reflects our expectation for weaker operating and financial metrics over the next 2 to 3 years, following a series of production disappointments, future guidance reductions and rising cash costs", Moody's senior analyst Matthew Moore said. 

"These production disappointments come at a time of increased volatility and sharp declines in gold price, which at previously elevated levels helped insulate some of the company's past operating issues".

Moody's Investors Service downgrade concludes a review started on June 7, after the Melbourne-based Newcrest announced its shock writedowns to the market (see Tim Treadgold's Digging down into the Newcrest cave-in).  

The negative outlook pointed to Moody's expectation that debt would peak at 3.5 to 4 times higher than earnings before interest, tax, depreciation and amortisation in the current financial year, which was "beyond the tolerance range for the current Baa3 rating level". 

"The negative outlook incorporates the potential for execution challenges in achieving lower cost production and the announced cost reduction initiatives," Moody's said. 

However, Newcrest's scale provided some support and its ratings outlook could revert to stable it it completed cost-cutting initiatives, including cutting capital and exploration expenditure, site operating costs and  corporate and labour costs.

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