Newcrest Mining expects to write $6 billion off the value of its mines as part of a restructuring that will claim hundreds of jobs and cut dividends for at least a year.
Australia's biggest listed gold producer confirmed it would close its Brisbane office, cut its 2014 capital spending by a third and almost halve its spending on exploration, as it tries to adjust to a lower gold price.
Announcement of the restructure exacerbated a week of share price falls, with $2.6 billion being wiped off the value of the company since the rot began on Tuesday morning.
The looming write-down prompted ratings agency Moody's to place Newcrest's credit rating on review for a possible downgrade. Any substantial downgrade could see Newcrest's current Baa rating move into junk territory.
The exact size of the impairment will be confirmed in August, and the company said the pain would be spread across Newcrest's six mines.
But an estimated $3.6 billion of the impairment will relate to goodwill on the troublesome Lihir mine in Papua New Guinea, which the company bought for about $10 billion in 2010.
That price now outstrips Newcrest's market capitalisation, and the purchase increasingly appears to be an expensive blunder, given the production downgrades Lihir has caused over recent years.
Kimber capital broker Kim Slater even likened the Lihir purchase and its impact on the Newcrest share price to Rio Tinto's disastrous $38 billion Alcan acquisition, which was central to the sacking of Rio boss Tom Albanese.
"From its peak $40 share price the board has presided over a $20 billion loss in market value," he wrote. "That destruction of shareholder value is only eclipsed by Rio's Alcan write-downs since the GFC. And heads rolled over that."
Newcrest chief Greg Robinson was not in charge when Lihir was purchased, but some members of the board were.
Staff numbers at Newcrest will be cut hard and fast. Mr Robinson said between $50 million and $75 million worth of redundancies would be processed and completed within the next 23 days. About 100 further job cuts are expected to join the 150 jobs cut earlier this year.
Rather than being an aggressive growth stock, Newcrest will now cease production of high-cost gold, and instead focus on maximising cash flow.
Gold production in 2014 is now forecast to be a maximum of 2.3 million ounces, almost exactly the amount produced in 2012, despite billions being spent on expansions and upgrades.
Friday's changes almost certainly disrupt Newcrest's cherished five-year plan to produce 3.5 million ounces of gold by 2017. But Mr Robinson stressed that the company was retaining the assets, and could revive them should the market conditions suddenly rebound.
As if the restructuring were not dramatic enough, the 15 per cent slump in Newcrest shares over the 72 hours before the announcement created its own sideshow.
Bell Potter director Charlie Aitken told clients that the slump should be "fully investigated" by the Australian Securities and Investments Commission.
"I believe any mum-and-dad investor who bought [Newcrest] shares in the last two days has grounds for genuine concerns," he said. The comments were echoed by other brokers, and an ASIC spokesman said the issue had not escaped its attention.
"We are aware of the trading and we are in discussions with ASX regarding the price move, which is in accordance with our usual procedures where there have been large moves in share prices," he said.
A Newcrest spokeswoman defended the company against the allegation, saying there had been no selective briefings for analysts.
She said the analyst reports during the week were similar in theme to what Newcrest foreshadowed in its April results announcements, and to what Mr Robinson said during a recent conference speech in Barcelona.
Analyst reports either downgrade Newcrest or question the outlook for the stock
Newcrest shares dive 80¢ to $14.35.
The company comes under pressure to respond to the share price slump
Newcrest shares drop 99¢ to $13.36
After market close, BusinessDay reports that Newcrest is poised to cut jobs and close its Brisbane office.
The company announces it will scrap its dividend, cut jobs, shut Brisbane and write down up to $6 billion in assets
Its shares close $1.01 down to $12.35