UPDATE: Newcrest Swings to Loss as Gold Slide Prompts Writedowns

-- Newcrest reports A$5.78 billion full-year loss

-- Miner scraps dividend as margins squeezed by gold price slide

-- Further cutbacks possible if gold price falls further, CEO says

(Adds Newcrest CEO comment from fifth paragraph; share price in eleventh paragraph; fund manager comment in thirteenth paragraph)

 
   By Rhiannon Hoyle 
 

SYDNEY--Newcrest Mining Ltd. (NCM.AU) reported the biggest annual loss in its history, after a sharp fall in the price of gold forced it to write down the value of its mines and investments by 6.23 billion Australian dollars (U$5.73 billion).

Melbourne-based Newcrest also scrapped its final dividend as it looked to conserve cash at a time when mining costs are rising and investors are losing faith in gold as a so-called safe-haven asset, especially after the U.S. Federal Reserve signaled it could start to wind down its fiscal stimulus as soon as next month.

Newcrest, which owns mines in Australia, Papua New Guinea, Indonesia and Ivory Coast, reported a net loss of A$5.78 billion for the year through June compared with a profit of A$1.12 billion a year earlier. On an underlying basis, which strips out one-off items like impairment charges against assets, profits of A$451 million were ahead of the A$434.6 million median of six analysts' forecasts compiled by The Wall Street Journal.

Once the darlings of stock markets around the world, gold miners have been driven on to the back foot by a 20% slump in the price of the precious metal since the start of the year. The sudden halt to a decadelong bull-run in the gold market has led many mining companies to slash spending, close mines, lay off workers and scale back executive pay.

"It has been a very, very challenging year for the gold sector," Chief Executive Greg Robinson told reporters.

Driving this shift is a change in mood among investors toward risky assets. With the developed world appearing on the cusp of a recovery, many investors are seeking higher returns from currencies or equities that they had previously shunned when Europe was struggling to get on top of the debt woes and the U.S. was loosening monetary policy.

Newcrest is one of the world's biggest gold miners by market value, competing with Goldcorp Inc. (GG), Barrick Gold Corp. (ABX) and Newmont Mining Corp. (NEM). It is the largest in Australia, where total production of the precious metal is only outpaced in volume terms by China.

Mr. Robinson said Newcrest could intensify its cost-cutting program if the gold price fell further. It is already laying off thousands of workers, delaying smaller projects and has slowed work at some of its mines in response to weaker demand for the precious metal.

"We do have capacity to act if margins decline further. We aren't going to run operations that are going to lose us money," he said.

Mr. Robinson declined to say which operations may be at risk of further cutbacks, although the company has described its Hidden Valley mine in Papua New Guinea and Telfer operation in Western Australia as its costliest to run.

Shares in Newcrest rose Monday, although investors attributed the rise largely to a jump in precious metal prices. Spot gold traded above US$1,330 a troy ounce Monday, recovering from last week's low below US$1,275 an ounce.

Newcrest closed up 7.9%, while smaller Australian rivals Silver Lake Resources Ltd. (SLR.AU) and Evolution Mining Ltd. (EVN.AU), in which Newcrest holds a 33% stake, were up 13% and 19% respectively.

Still, Angus Gluskie, Sydney-based chief investment officer of White Funds Management, predicts the challenges facing Newcrest will face last several years, as gold prices stay weak and costs high. White Funds owns Newcrest shares.

The Lihir mine in Papua New Guinea--acquired through Newcrest's A$9.5 billion takeover of Australia-listed rival Lihir Gold Ltd. in 2010--accounted for more than half of the company's writedowns. Impairment charges were also taken against three other mines, along with its stake in Evolution.

Other miners, including Rio Tinto PLC (RIO), have also written down the value of assets bought when commodity prices peaked. Barrick Gold earlier this month announced a US$8.7 billion impairment.

In addition to falling prices, Newcrest's full-year earnings were hit by disruptions at several of its mines. Annual gold production fell 8% to 2.11 million ounces.

Moody's Investors Service last month downgraded the miner's credit rating, citing rising costs, production disappointments and the sharp decline in gold prices.

Write to Rhiannon Hoyle at [e-mail]

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