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Posts Tagged ‘Newcrest’

Xstrata retains leadership in Dow Jones Sustainability Index

September 20, 2011 Comments off

“The main sustainability issue facing the mining industry is that of declining ore grades, which implies that over time, more mineral ore needs to be extracted and processed in order to produce the same amount of metal. This is likely to exacerbate many of the environmental and social issues facing the mining & metals industry going forward. Some of the prominent environmental issues include mineral waste management, as well as the management of key inputs such as energy and water. Social issues are mainly centered around the health & safety of workers and general labor conditions. Issues such as land rights, population relocations, the use of private security forces to protect mining assets, and mine closure also remain very controversial. As with other extractive industries, the mining space is particularly susceptible to corruption, bribery and other breaches of the Codes of Conduct”

Source: Dow Jones Sustainability Index Review 2011, September 2011

Observations:

  • Xstrata tops the Dow Jones Sustainability Index for the basic resources sector for the second year in a row.
  • Most important changes of the index for the mining industry are the inclusion of Newcrest and Kinross, and the removal from the index of ArcelorMittal and Goldcorp.
  • Assessment criteria include economic, environmental, and social topics. Full list of criteria can be found here.

Implications:

  • Inclusion in the DJSI is mainly a marketing issue; it does not have direct operational or financial consequences. Many countries do require foreign investors to adhere to global reporting initiatives to ensure a certain level of sustainability, but DSJI requires a much broader set of policies.
  • Xstrata especially scores higher than industry average in terms of climate strategy, mineral waste management, human capital development, and standards for suppliers. The benchmark report will certainly be used by some companies to prioritize areas for improvement.

©2011 | Wilfred Visser | thebusinessofmining.com

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Newcrest Profit Soars 63%

August 15, 2011 Comments off

“Newcrest Mining Ltd., the world’s third-largest gold miner by market value, said Monday its fiscal full-year net profit rose 63% to 908 million Australian dollars ($940.1 million), as production jumped on its acquisition of Lihir Gold Ltd. and the price of gold soared.

‘The world economic and political issues are supporting a very strong gold price going forward,’ Chief Executive Greg Robinson said in a conference call. He didn’t provide a specific price forecast. The surging gold price, which averaged A$1,409 per troy ounce over the company’s fourth quarter ended June 30 and has since hit successive records up to $1,814.89 per ounce, helped lift earnings at the Melbourne-based company from A$556.9 million the previous year.

On the underlying basis preferred by equity analysts, which excludes one-off and accounting items, net profit came to A$1.06 billion in the financial year, the company said in preliminary annual results. Analysts had suggested an average figure of A$1.05 billion.”

Source: Wall Street Journal, August 15 2011

Observations:

  • Newcrest is the world’s 6th-largest producer of gold, producing approx. 2.5bln ounces in 2010. About a quarter of the production comes from Western Australia’s Telfer mine.
  • A 43% increase in production volume results in 76% higher employee salaries and 87% higher maintenance and contract labour, showing the cost pressures that have led to the current $513/oz production costs.

Implications:

  • Newcrest is working on the integration of Lihir, bought a year ago for $8bln. The lower grade deposits the company is developing change the cost structure of the company and reduce its historically high profit margin. As a result the company will become more similar to large rivals Barrick and Newmont.
  • High gold prices drive gold miners to pay out large dividends, trying to convince investors of the benefits of holding gold miner shares rather than gold ETFs.

©2011 | Wilfred Visser | thebusinessofmining.com

Newcrest Earnings Surge as CEO Steps Down

February 11, 2011 Comments off

“Newcrest Mining Ltd. Chief Executive Ian Smith unexpectedly resigned from the world’s fifth-largest gold miner Friday, as the company said fiscal first-half net profit more than doubled to 437.8 million Australian dollars ($439.4 million) from a year earlier.

Mr. Smith, who took over as head of the company in July 2006, said he was leaving to ‘pursue other areas of personal interest’ and would be handing over to Greg Robinson, the company’s executive director of finance. His resignation surprised many in the market, who had expected to see Mr. Smith enjoy the fruits of his labors after turning the company around and completing the acquisition of smaller rival Lihir Gold Ltd. in September.”

Source: Wall Street Journal, February 10 2011

Observations:

  • Newcrest bought and quickly integrated Lihir last summer in an $8bln deal, almost doubling the production capacity of the company.
  • In the wake of the financial crisis and with the increase of the gold price over the past decade directors of gold miners seem to see a lot of worth in finding CEOs with a solid financial background. Barrick’s Aaron Regent, Newmont’s Richard O’Brien, GoldField’s Nicholas Holland, and Newcrest’s Greg Robinson all held CFO positions prior to being appointed CEO.

Implications:

  • Mr. Smith is mentioned to potentially take a top position at either BHP Billiton or Rio Tinto. However, he denies having any concrete plans for a future executive job at this moment. CEO positions at both Anglo American and Vale might become available in the near future: Anglo’s Cynthia Carroll has completed a successful turnaround of the company, while Vale’s Agnelli sees the term in which he turned the domestic champion into the world’s second largest miner end this May. Vale’s board is likely to either give Agnelli a new term or to appoint another Brazilian CEO to ensure good political ties with the government.
  • Expansion of the current group of diversified miners into gold mining should not be ruled out. As they currently hold minor positions in the precious metals market, this might be one of the fields where large deals are still approved by regulators. However, with current gold prices any deal would be based on very high valuation and closed at a high price.

©2011 | Wilfred Visser | thebusinessofmining.com

Newcrest expects $8bn Lihir deal

June 9, 2010 Comments off

“Newcrest Mining said on Tuesday it has finished due diligence on rival Lihir gold and expects to complete the $8.4 billion deal by September. It added that Lihir should now stop any discussions with third parties.

At least four of the world’s biggest gold producers have looked at the books of Lihir but Newcrest was seen as the only bidder, people familiar with the situation said on Monday.”

Source: Reuters, June 8 2010

Observations:

  • Lihir Gold has operations in Papua New Guinea, West Africa and Australia. In 2009 LGL produced 1.1 million ounces of gold.
  • The $8bn takeover would be the largest acquisition in the mining industry this year.
  • AngloGold Ashanti, Barrick Gold, Newcrest and Newmont mining are all said to have done due diligence on Lihir.
  • Lihir’s shares jumped over 30% early april after the company rejected an acquisition proposal by Newcrest valuing the company at AU$9.2 billion, 6.4% below the new offer.

Implications:

  • Compared to other metals the gold market is still rather fragmented. It is likely that further consolidation will take place in the industry.
  • The current high gold prices do create favourable conditions for acquisitions of companies with high current production, as investments can be paid back quickly. Still, Newcrest will be paying a large premium, as it is willing to pay the highest price of all the gold producers.

©2010 – thebusinessofmining.com

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