The debacle at Australia’s largest gold miner, Newcrest, has been something special.
The company has lost 70 per cent of its value in the two years since the current chief executive, Greg Robinson, was appointed, and then last week it managed to muck up the release of a “highly confident” business review designed to turn sentiment around.
Judgement about what happened will have to await an Australian Securities and Investments Commission investigation, but it smells peculiar. And that’s not just because of the whiff of insider trading – there was actually nothing in Friday’s announcement that should have led to a collapse in the share price, but it has.
Newcrest shares rallied on Monday and Tuesday morning, opening the week at $14.40 and reaching $15.68 at 1pm Tuesday, a rise of 8.9 per cent in a day and a half. They then started falling rapidly in the afternoon amid rumours of broker downgrades, and closed at $15.15.
Sure enough, next morning UBS came with out with a downgrade to “sell”, lowering its price target to $12. Clunk – stock opens at $14.58 and slides to $14.25 during the day. Next morning two more brokers downgrade: Credit Suisse and Citi.
Then on Friday morning, before the market opened, the Newcrest board released a “Business Plan and Budget Review”, foreshadowing $5-6 billion in asset writedowns, a 20 per cent reduction in costs but unchanged “guidance”. Newcrest shares opened at $11.52, down from the previous close of $13.36 and then recovered back to $12.35 by Friday’s close.
In the end, a week that was supposed to be the turning point for Greg Robinson and his board saw the price tumble 21 per cent from a high of $15.68 on Tuesday to $12.35 on Friday night, with accusations of insider trading and angry calls for Robinson’s head.
Robinson denies there were any selective briefings of analysts ahead of Friday’s announcement – that it was a just a coincidence several brokers downgraded Newcrest during the week.
And no doubt it was also a coincidence that the price started to fall before those downgrades were revealed.
In itself, Friday’s statement from the company does not seem to justify a 20 per cent drop in the share price.
For a start, asset writedowns rarely affect a share price: usually the market has well and truly adjusted, and the board brings up the rear, confirming what everyone already knew. In this case, it was that Newcrest had overpaid for Lihir gold in 2010 – before Greg Robinson took over.
The rest of the statement was a cost cutting program and affirmation of the production outlook, the profit and the dividend; if anything it should have resulted in an increase in the share price, which is probably what the board and management had expected.
But it all got lost because of the sudden flurry of broker downgrades in the days preceding, and the fact that the price seemed to start falling before those downgrades became public.
ASIC says it is now investigating this, and whether the company gave briefings to any brokers during the week. Good luck with that.
ASIC announced an insider-trading win on Friday, with the two-year incarceration on appeal of Nicholas Glynatsis, a 30-year-old former tax accountant with Pricewaterhouse Coopers, who had previously confessed to nine counts of insider trading, which produced profits totalling $50,000.
Last week’s Newcrest shorters would have made a lot more than $50,000, and they won’t be confessing to anything other than sheer brilliance.
Last week, in an interview published in marketwatch.com, the convicted Ponzi scheme fraudster, Bernie Madoff, said: “The individual investor is the last person that has any information.”
Alan Kohler will be hosting two Ashes lunches with Gideon Haigh and Stephen Fay (former editor of here.and author of books about The Bank of England and the collapse of Barings) on June 25 in Sydney and June 26 in Melbourne. To book a table click