Newcrest moves to low-cost mines
Newcrest Mining's plan to reinvent itself as a smaller gold producer with lower costs has started well, with the company delivering on most of the promises made during the now infamous June 7 restructure.
After its first three months operating under the new strategy, Newcrest produced gold at an average price of $A1093 per ounce, which is about 15 per cent lower than average costs during the disastrous 2013 financial year.
The miner has vowed to stop producing its highest cost ounces at mines like Telfer and Hidden Valley in favour of maximising profitability under lower gold prices.
The 586,573 ounces produced during the quarter was 9 per cent below the June quarter result, but ahead of most expectations.
Newcrest previously said it would need a gold price of $A1450 per ounce to break even in the 2014 financial year, but on Thursday said it could now break even at a lower price.
Gold was fetching $US1278 per ounce on global markets on Thursday, and Australia's top commodities forecaster - the Bureau of Resources and Energy Economics - predicted it will stay below $US1300 per ounce until 2018 at least.
Goldman Sachs analyst Richard Coppleson said gold's failure to rally during this week's debt standoff in the US showed that the yellow metal was out of favour with investors.
"Gold has had every reason in the world to go up and it didn't respond - shows just how negative the market is on it and after the deal is done it's going to $US1200 pretty quickly," he said on Wednesday.
Despite the good news on production and costs, Newcrest revealed it would concede defeat on several tax disputes that have been under investigation by the Australian Tax Office.
The claims were made for research and development between 2005 and 2011, and Newcrest said it would pay $120 million to resolve "some" of the claims.
The concession will further turn the spotlight on Ian Smith's tenure as Newcrest boss, during which the company also completed the controversial acquisition of Lihir Gold.
Lihir has been at the heart of many of Newcrest's failures to meet gold production targets.
Mr Smith's five years in charge of Newcrest fell within the 2005 to 2011 period.
Resolving the tax issue is expected to leave Newcrest $70 million worse off once other tax losses are taken into account.
Newcrest has also secured an extra $US450 million in debt to provide "additional liquidity headroom". The debt will mature gradually between 2015 and 2018 and comes after recent speculation that the company might conduct a dilutive equity raising.
Newcrest has already expressed a desire to reduce its gearing ratio, which stands at almost 30 per cent.