Cash flow woe hits Newcrest

 By GYNNIE KERO

NEWCREST Mining Ltd (NML) will speed up cost cutting and capital reduction due to the falling prices of gold in the world market.

The miner reconfirmed its strategy to focus on cash flow over growth, managing director and chief executive Greg Robinson said.

In a statement last Friday, Robinson said: “Our focus on gold and low cost operations mainly in Australia and the Asia Pacific region remain firmly in place.

“Newcrest will focus on cash flow by delivering the ramp ups at its two major lower costs assets (Lihir and Cadia valley) and on overall cost and capital reduction.

“The decision today represents an acceleration of our cost and capital reductions that have been in action over the past 12 months.”

In its review of the business plan and budget for the next financial year up to June 30, 2014, Newcrest said next year’s outlook is “impacted by the recent deterioration in the gold price, a strong Australian dollar and increasing costs”.

The company said it would take A$5 billion (K10.27 billion) to A$6 billion (K12.3 billion) in impairment charges this year related to its investments in gold assets in PNG, Australia and Africa.

Gold price has fallen 23% from last year’s high of US$1,792 (K3,742) an ounce to US$1,386 (K3,000) an ounce (last Friday) in London, after registering its biggest two-day drop in three decades in mid-April.

Under the new business plan, Newcrest’s free cash flow has been budgeted to be neutral next financial year (2014).

Likewise, Newcrest has expected it to be positive in the subsequent years, based on current metal prices and exchange rates.

Newcrest has also decided to cut its capital expenditure plans and significantly reduce exploration expenses besides adopting cost-cutting measures across all operations and reducing expenses on corporate office and support functions.

The capital expenditure has been slashed by a third to A$1 billion (K2 billion) from A$1.5 billion (K3 billion).

As part of the measures, Newcrest will close its Brisbane office and cut around 250 jobs. 

The company also expected to achieve a 20% reduction in corporate spending next year.

About, A$2.2 billion of impairment is on account of higher cost assets namely Telfer gold- copper mines in Western Australia, Hidden Valley  gold and silver  mine jointly operated by Newcrest and Harmony Gold Mining Co, and the 90% owned Bonikro gold mine in Ivory Coast,Africa.

Robinson said this strategy would place Newcrest in a strong position in the current challenging economic environment.

Newcrest chairman Don Mercer said: “There had been a significant change in the price of gold, gold equities and other market factors since the start of this calendar year.”

“The Board believes the announcement shows that Newcrest is responding decisively to this context to ensure cash flow is maximised should prices remain at this level or lower, whilst at the same time preserving all options to respond should conditions improve. 

“The Board is fully supportive of management and their planned actions.”

Melbourne-based Newcrest is one of the world’s top five gold mining companies, engaged in production and exploration activities. 

It has operations in Australia, the Pacific region, Asia and Africa, employing about 19,000 employees.