Newcrest battens down the hatches
Newcrest Mining has indicated it is preparing for further gold price declines that could lead to more asset write-downs. At the same time, a low gold price could open the door for Newcrest to buy assets on the cheap.
Addressing shareholders at Thursday's annual meeting, chairman Don Mercer said Newcrest's priorities were to deliver "reliable low-cost production" as well as to restore its reputation, which has been hurt by concerns over the selective briefing of analysts, along with problems at its Lihir mine in PNG.
And investor sentiment towards the company has soured following the slump in the gold price, which saw earnings dive, the dividend suspended and heavy asset write-downs.
Mr Mercer said a priority was "strengthening the company's balance sheet so that it is positioned to withstand further gold price deterioration and/or take advantage of opportunities".
He also defended the purchase of Lihir, which has continued to perform poorly since its acquisition, amid criticism Newcrest paid too much for the asset.
The Australian Securities and Investments Commission continues to investigate the claims of selective analyst briefings, shareholders were told.
"Our reputation had clearly taken a battering," Mr Mercer conceded.
In the year to June, Newcrest booked $5.5 billion of asset impairments, of which $3.7 billion related to Lihir and $1.8 billion to Telfer. Even so, there might be further write-downs if the gold price remains weak.
"To the extent the gold price falls a great deal further, then all gold companies will have to review the carrying values of their assets," Mr Mercer said.
Gold about $US1300 an ounce is keeping pressure on management to cut costs further. "Most of our operations are profitable at these lower gold prices," chief executive Greg Robinson said. "But we continue to focus on reducing costs at all sites, particularly at Telfer, Hidden Valley and Bonikro."
Telfer remains a high-cost producer, he said, with capital spending being restricted as it focuses on lower-cost reserves to help improve operations.
The Bonikro and Hidden Valley mines were also high cost, Mr Robinson said, and the aim was to reduce costs further. "Both are expected to do better in the quarters ahead," he said.