Completion of Business Plan and Budget Review
MELBOURNE, Victoria, June 6, 2013 /CNW/ - The Newcrest Board and
Management have completed a review of the Company's business plan and
2014 financial year budget. This review has impacted 2014 financial
year guidance (production, capital expenditure, operating costs and
cashflow) and is also expected to impact the 2013 statutory accounts
(asset carrying values and final dividend for the 2013 financial year).
The accounting outcomes contained in this release will be finalised in
conjunction with the completion of the 2013 financial statements in
August 2013, however they are not expected to change materially from
the estimates presented below.
The 2014 budget has been developed in the context of the current market
environment and outlook, including a recent sharp deterioration in the
gold price (the largest in 30 years), the ongoing strength of
Newcrest's operating currencies relative to the US$, and an elevated
operating cost environment.
Newcrest reconfirms its focus going forward will be on maximising free
cashflow by reducing operating costs, corporate costs and capital
expenditure. Free cashflow (after $1 billion of capital expenditure)
is budgeted to be neutral in the 2014 financial year at current metal
prices and exchange rates. The Company is projected to be free cashflow
positive in the years thereafter at current metal prices and exchange
rates, and the Company will apply these funds to reduce debt and return
cash to shareholders.
In response to the change in market conditions, Newcrest has taken and
will continue to progress a range of actions to maximise free cashflow
over the next three years. These actions include:
cutting discretionary spend on projects and studies;
a significant reduction in exploration activities;
a continuous "cost out" program across all operations;
increasing stockpile utilisation at Lihir and reducing open pit material
movements generally; and
suspending production of higher cost ounces across all operations.
Corporate office and support functions will be further rationalised,
resulting in a reduction of at least 20% in corporate costs and the
closure of the Brisbane office.
Carrying value implications
Newcrest is reviewing the carrying values of its assets having regard to
materially lower gold prices, the compression of earnings multiples in
the gold industry (the latter being a market proxy for gold price
forecasting and resource conversion) and other market factors. The full
assessment of carrying value will be completed after 30 June 2013
having regard to actual financial year end balances and final valuation
assessments by the Board.
However, based on the latest estimate of carrying values and the
Company's internal indicative valuations, the Board and Management
believe an impairment of the carrying value of assets in the range of
$5 to $6 billion is likely. While this impairment will have no impact
on cashflow, the reduction in the asset book values will have a
material impact on the 2013 financial year statutory accounts.
It is anticipated the asset write-downs will encompass all goodwill on
the balance sheet (approximately $3.6 billion and $0.2 billion in
relation to Lihir and to Bonikro respectively) and impairments to our
higher cost assets, namely Telfer, Hidden Valley and Bonikro (to a
total of up to $2.2 billion).
Whilst the Company expects it will write-down the carrying value of the
aforementioned assets, there are other assets within the Newcrest
portfolio that the Board and Management believe have a market value
much greater than their carrying value, namely Cadia Valley, Gosowong,
Wafi Golpu and Namosi.
Guidance for production, costs and capital for the 2013 financial year
is unchanged. The expanded Lihir plant and Cadia East continue to ramp
up in line with expectations and Gosowong is again accessing high grade
The key outcomes from the review in relation to the 2014 financial year
are as follows:
Gold production is expected to be 2.0 to 2.3 million ounces,
representing a mid-point estimate increase of approximately 4% year on
year. This production estimate reflects the removal of high cost ounces
from the production profile, particularly at Telfer, Lihir and Cadia
Corporate costs are expected to be at least 20% lower in the 2014
Free cashflow for the 2014 financial year (operating cashflow less
investing cashflow of $1 billion) for the Group is expected to be
neutral at prevailing metal prices and exchange rates. Every operation
is budgeted to be free cashflow neutral or positive in the 2014
financial year at current metal prices and exchange rates.
Capital expenditure in the 2014 financial year has been reduced from an
earlier estimate of $1.5 billion to around $1 billion. The largest
single item of expenditure in the year (approximately $350 million)
relates to the Cadia East Panel Cave 2 development, which underpins the
Company's future production growth and enhanced cost position, and will
be largely completed in the 2014 financial year. The balance of the
capital expenditure relates to completion of projects at Lihir,
including stripping at Cut Back 9, electrical and control system
refurbishment, flotation expansion and NCA tanks rebuild, as well as
sustaining capital expenditure at each site across the business.
Exploration expenditure will reduce from its current level of $160
million to around $85 million, with a key focus on mine-life extensions
at Gosowong and Telfer.
Costs associated with restructuring the Group are likely to result in
one off charges in the order of $50 million to $75 million, which may
be recognised in part or whole in the 2013 financial year statutory
accounts. The ongoing annual cost savings associated with these changes
will exceed this amount.
Newcrest remains committed to maintaining a strong balance sheet and an
investment grade credit rating. The decline in prices in the current
financial year has the effect of increasing the likely gearing of the
Company at 30 June 2013 to around 21%. An asset write-down of $5 to $6
billion would result in the gearing of the Company being in the order
of 28-30% at 30 June 2013.
Newcrest has previously communicated an objective for gearing to remain
below 15% so as to ensure it is able to withstand sustained adverse
price movements and having regard to the major capital projects it had
The Company believes that a major adverse price change has now occurred.
However, having completed its two major project expansions earlier this
calendar year and with future capital expenditure declining, Newcrest's
balance sheet remains strong and is expected to improve going forward.
Newcrest expects gearing will be broadly unchanged by the end of the
2014 financial year. However, the future increase in free cashflow (at
current metal prices and exchange rates) associated with the growth of
earnings from Cadia East and Lihir, combined with further reductions in
capital expenditure, should allow a significant, progressive reduction
in debt from the start of the 2015 financial year.
There are no ratings triggers or gearing covenants in any of Newcrest's
debt facilities. Newcrest has substantial undrawn committed bank
facilities and cash balances of around US$750 million.
The Company's dividend policy remains unchanged, with future dividend
levels set having regard to profitability and balance sheet strength,
and reinvestment options in our business. The Company remains committed
to returning cash to shareholders via dividends in line with this
In the context of the reduction in 2013 financial year profitability
following the sharp decline in prices, the elevation of gearing at 30
June 2013 associated with the estimated write-down of carrying values
and the application of cash flow to completion of the Panel Cave 2 at
Cadia East, the Board expects that there will not be a final dividend
in relation to the 2013 financial year.
As growth in production and earnings continues from Cadia East and Lihir
over the coming years, costs are reduced across our businesses, and
capital expenditure reduces further, Newcrest is confident it will be
well positioned for both an accelerated reduction in debt levels and a
return to dividend payments.
Newcrest remains highly confident in the outlook for the Company.
Lihir and Cadia Valley are large, long life and low cost operations with
considerable growth potential;
Both Cadia East and the expansion of Lihir, being recently completed
major projects, are ramping up well and in line with or better than
Gosowong is a low cost producer;
Telfer, whilst higher cost, has a large mineral endowment;
Hidden Valley and Bonikro are expected to improve their production and
cost profiles in the 2014 financial year;
Wafi-Golpu and Namosi remain exciting growth options with long dated
development timeframes that do not require significant capital
expenditure in the near term;
Cost control measures have been put in place and will continue,
including site cost reductions and rationalisation of head office
All Newcrest operations are budgeting to be free cashflow neutral or
positive in the 2014 financial year at current metal prices and
exchange rates; and
The Company is expected to be free cashflow neutral (after capital
expenditure of approximately $1 billion) for the 2014 financial year at
current metal prices and exchange rates.
SOURCE: Newcrest Mining Limited
For further information:
Investor Enquiries - North America/Europe
T: +1 212 351 5064
Investor Enquiries - Australia/Asia
T: +61 3 9522 5316
T: +61 3 9522 5593
This information is available on our website at www.newcrest.com.au and on www.sedar.com.