Newscrest Mining announce first loss in over a decade: gold's in trouble

Net loss of US$5.77 bn

The largest gold miner in Australia has reported a net loss of US$5.77 bn for the 2013 financial year, thanks to a massive $6.22 billion writedown in the value of its assets. Gold prices have fallen by nearly 30 per cent since January to a low in June of $1,180 per troy ounce, forcing Newscrest to curtail gold production at its most expensive mines and reassess the value of its assets.

Without the writedowns, underlying earnings stood at $451m, down from $1.11 bn last year, showing just what trouble gold miners are in globally. Adding to the company’s woes, Moody’s ratings agency downgraded Newscrest to Baa3, the lowest investment grade, and said the company could yet be in line for a further cut.

Production stood at 2.1m ounces for the year to June, 8 per cent lower than last year, thanks in part to the tumbling gold price, and to a series of disruptions at its mines in Australia, Indonesia, Ivory Coast and Papua New Guinea. The company is forecasting only a marginal increase to 2.3m ounces for 2014 and refused to forecast production beyond next year, citing market volatility.

Although the wheels have now clearly come off the wagon for Newscrest, the company’s financial health may not have been as good as it has appeared in the past either, with critics accusing the company of selectively briefing analysts as a number of investigations into its financial reporting have been launched.

Indonesian and Australian tax authorities have both placed the company under review, with the Australian investigation looking at six years of financial reports between 2005 and 2011. The Australian Securities and Investments Commission have also begun an investigation after investors appeared to anticipate a major corporate restructure on 7th June.

Newscrest’s trials and tribulations reflect the troubles the global mining industry currently finds itself in, with Barrick Gold last week announcing a second-quarter net loss of $8.56 bn, thanks to $8.7 bn in after-tax impairment charges driven by the declining gold price. The largest slice of the charge came from the Pascua-Lama project on the border of Chile and Argentina, which accounted for $5.1 bn. President and CEO Jamie Sokalsky said: “We are disappointed with the impairment charges for Pascua-Lama and other assets, but we are confident that these assets, some with mine lives in excess of 25 years, will generate substantially more economic benefits over time.”

It appears the market shares his optimism with the gold price rallying by $17 to $1,330 an ounce yesterday. This helped gold miners’ share prices to post a modest recovery, with Newscrest ending the day 7.2 per cent up. Whether this gain is a temporary blip or a long term recovery in the lustre of the gold market remains to be seen.

The largest gold miner in Australia has reported a net loss of US$5.77 bn. Photograph: Getty Images

Mark Brierley is a group editor at Global Trade Media

Photo: Getty
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Forget planning for no deal. The government isn't really planning for Brexit at all

The British government is simply not in a position to handle life after the EU.

No deal is better than a bad deal? That phrase has essentially vanished from Theresa May’s lips since the loss of her parliamentary majority in June, but it lives on in the minds of her boosters in the commentariat and the most committed parts of the Brexit press. In fact, they have a new meme: criticising the civil service and ministers who backed a Remain vote for “not preparing” for a no deal Brexit.

Leaving without a deal would mean, among other things, dropping out of the Open Skies agreement which allows British aeroplanes to fly to the United States and European Union. It would lead very quickly to food shortages and also mean that radioactive isotopes, used among other things for cancer treatment, wouldn’t be able to cross into the UK anymore. “Planning for no deal” actually means “making a deal”.  (Where the Brexit elite may have a point is that the consequences of no deal are sufficiently disruptive on both sides that the British government shouldn’t  worry too much about the two-year time frame set out in Article 50, as both sides have too big an incentive to always agree to extra time. I don’t think this is likely for political reasons but there is a good economic case for it.)

For the most part, you can’t really plan for no deal. There are however some things the government could prepare for. They could, for instance, start hiring additional staff for customs checks and investing in a bigger IT system to be able to handle the increased volume of work that would need to take place at the British border. It would need to begin issuing compulsory purchases to build new customs posts at ports, particularly along the 300-mile stretch of the Irish border – where Northern Ireland, outside the European Union, would immediately have a hard border with the Republic of Ireland, which would remain inside the bloc. But as Newsnight’s Christopher Cook details, the government is doing none of these things.

Now, in a way, you might say that this is a good decision on the government’s part. Frankly, these measures would only be about as useful as doing your seatbelt up before driving off the Grand Canyon. Buying up land and properties along the Irish border has the potential to cause political headaches that neither the British nor Irish governments need. However, as Cook notes, much of the government’s negotiating strategy seems to be based around convincing the EU27 that the United Kingdom might actually walk away without a deal, so not making even these inadequate plans makes a mockery of their own strategy. 

But the frothing about preparing for “no deal” ignores a far bigger problem: the government isn’t really preparing for any deal, and certainly not the one envisaged in May’s Lancaster House speech, where she set out the terms of Britain’s Brexit negotiations, or in her letter to the EU27 triggering Article 50. Just to reiterate: the government’s proposal is that the United Kingdom will leave both the single market and the customs union. Its regulations will no longer be set or enforced by the European Court of Justice or related bodies.

That means that, when Britain leaves the EU, it will need, at a minimum: to beef up the number of staff, the quality of its computer systems and the amount of physical space given over to customs checks and other assorted border work. It will need to hire its own food and standards inspectors to travel the globe checking the quality of products exported to the United Kingdom. It will need to increase the size of its own regulatory bodies.

The Foreign Office is doing some good and important work on preparing Britain’s re-entry into the World Trade Organisation as a nation with its own set of tariffs. But across the government, the level of preparation is simply not where it should be.

And all that’s assuming that May gets exactly what she wants. It’s not that the government isn’t preparing for no deal, or isn’t preparing for a bad deal. It can’t even be said to be preparing for what it believes is a great deal. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.