Newcrest’s gold trimmings no panacea, say analysts

Barry Fitzgerald | The Australian

ANALYSTS have warned that the pending departures of chairman Don Mercer and chief executive Greg Robinson from Newcrest are not a cure-all for the gold producer.

The departures were announced on Wednesday and followed a series of production downgrades, massive impairment charges on the $10 billion acquisition of the Lihir mine in PNG in 2010 and the group’s June continuous disclosure controversy.

The company nevertheless said the departures — Mr Mercer in December and Mr Robinson in the second half of next year — simply reflected orderly transition planning.

Regardless, company analysts said yesterday that difficult decisions lay ahead for the new leadership — Peter Hay as chairman and former Rio Tinto aluminium fix-it man Sandeep Biswas, initially as chief operating officer, and then chief executive on the departure of Mr Robinson.

UBS told clients the new team had “some difficult decisions to make, including the potential closure or divestment of the underperforming mines (Telfer in WA, Bonikro in Ivory Coast and Hidden Valley in PNG)”.

The broker said a return to balance sheet conservatism that reduces gearing to below 20 per cent, and “communicating a viable mine plan” for the troublesome Lihir to the market, should also be a priority.

“With the volatile gold price still causing uncertainty over Newcrest’s cashflow in financial-year 2014, we believe a capital raising may be a possibility,” UBS said. It said that to reduce its gearing ratio from the current 29 per cent ($4.1bn net debt) to 20 per cent, Newcrest would need to raise $1.2bn.

But incoming chairman Mr Hay told The Australian on Wednesday that there were no plans for an imminent capital raising even though gearing was above the company’s target level. “It is not a problem at this stage and there is no need for panic — any decision we take will be measured,” he said.

Credit Suisse said Newcrest’s choice of Mr Biswas as future CEO confirmed that “Newcrest’s focus is absolutely operational”

Newcrest shares closed down 29c at $10.64 yesterday.
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