By Rhiannon Hoyle
SYDNEY--Newcrest Mining Ltd. (NCM.AU), a one-time darling of
Australia's share market, has been stockpiling more than just ore
at its gold mines in Australia and Southeast Asia of late. The
challenges facing its management are mounting, too.
The Melbourne-based company's disclosure practices are being
probed by Australia's securities watchdog, its chairman and chief
executive are preparing to exit, and analysts think slumping gold
prices could force it to raise around 1 billion Australian dollars
(US$953 million) in new equity.
In the latest blow Thursday, the company unveiled a A$120
million tax bill to settle claims tied to past research and
development.
Newcrest's shares have lost 70% of their value since October
2011 to hover near a decade-low, giving the company a market
capitalization of A$7.82 billion. The fall in its stock is deeper
than rivals like Goldcorp Inc. (GG), Barrick Gold Corp. (ABX) and
Newmont Mining Corp. (NEM).
Gold miners have been forced on to the back foot by a sharp
slump in the price of the precious metal since the start of the
year. Spot gold prices are down by around 25% as the U.S. economic
recovery gathers steam and investors preempt a tapering of the
Federal Reserve's bond-buying program, which spurred record demand
for the so-called safe haven in recent times.
To protect profits, mining companies have slashed spending on
searching for new mineral deposits, closed mines and laid off
workers.
Newcrest Chief Executive Greg Robinson said the company's mines
had performed better than expected in the three months through
September. Costs in the quarter had dropped by 15% compared with
last year's average, after management cut spending and narrowed
focus to ore that could be mined more cheaply,
"Further levers are available to the company should the gold
price decline further," he said in an emailed statement.
Investors took a different view to Newcrest's performance.
Shares in the company closed 0.6% lower in Sydney Thursday,
underperforming the broader market, which was up 0.4%.
"The board needs to be restructured, operating performance needs
to improve and the debt is too high," said Tim Schroeders, a
Melbourne-based fund manager at Pengana Capital, who sold his
Newcrest stock this year. "The stock attracted a premium rating
that was unjustified."
Newcrest's troubles stretch beyond the falling gold price.
Operations at its mines have been disrupted by factors ranging from
mechanical breakdowns to heavy rains, triggering repeated
downgrades to its production guidance in recent years.
It has also been engulfed by controversy over the way it
disclosed details of a business review flagging more than A$6
billion in writedowns in June--just days after several banks
slashed their outlook on the company. An independent review
commissioned by Newcrest found no evidence of serious misconduct
when it reported its findings last month. However, the Australian
Securities and Investments Commission, the country's corporate
watchdog, is continuing to investigate.
Concerns around its disclosure practices led Institutional
Shareholder Services Inc., an independent proxy voting and
corporate governance advisory firm, to call for shareholders to
vote against the reelection of three directors.
Against this background of shareholder activism, Newcrest
unveiled plans earlier this month to overhaul its top ranks.
Chairman Don Mercer is to retire within months and Mr. Robinson is
due to stand down as chief executive next year. Mr. Robinson is
expected to be replaced by incoming chief operating officer Sandeep
Biswas, former chief executive of Pacific Aluminium, a unit of Rio
Tinto PLC (RIO).
Jo Battershill, a Sydney-based resources analyst at UBS AG,
recently said Newcrest may need to raise as much as A$1.2 billion
to get its gearing--or debt-to-equity level--down to a more
investor-friendly 20%.
In a move that may allay concerns about a potential issue of new
shares, Newcrest said Thursday it had agreed new loan facilities
totaling US$450 million.
"We have the capacity to take on more debt [but] our strategy is
to reduce overall levels of drawn debt," said Gerard Bond,
Newcrest's chief financial officer. "It gives us insulation from
any anxiety if prices were to fall sharply."
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
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