A return to profitability by major gold miner Newcrest Mining after suffering asset write-downs and regulatory breaches has seen it move closer to resuming dividend payments to shareholders.
Newcrest says cost cuts at its gold mines from Ivory Coast to Papua New Guinea and stronger cash flow have enabled it to pay down debt faster than expected. The miner will also start reporting its earnings in US dollars, thereby positioning its balance sheet to benefit from a stronger greenback if the Federal Reserve starts raising interest rates.
Like many producers, Newcrest was hit hard by the end to a 12-year rally in gold prices and it suspended dividends in 2013 after net debt swelled and it recorded the biggest annual loss in its history. In 2014 the company was fined for breaching rules on disclosing market-sensitive information.
On Monday Newcrest reported a net profit of Aus$546 million (US$403 million), compared with a loss of Aus$2.22 billion a year earlier, when its bottom line was weighed by write-downs against its gold-mining operations. Profit margins widened to roughly 23% from about 20% a year ago, as the company deepened cut costs.
Newcrest used much of its spare cash to repay loans, reducing its US-dollar denominated net debt by US$819 million. When its debt is converted to Australian dollars, the currency in which Newcrest reports its balance sheet, the reduction is a slimmer Aus$174 million, to Aus$3.76 billion, due to that currency's sharp fall. It will begin reporting its results in US dollars from this fiscal year.
“Our priority remains reducing our debt as we go forward,” CEO Sandeep Biswas said. He also indicated that the board would consider restarting dividends when the balance sheet was in better shape.
Newcrest’s gearing, which is a measure of its debt relative to equity, dropped to 29% from 34% a year ago. The target is below 25%.
Newcrest also said that it wouldn’t sell its Telfer mine in Western Australia but would instead invest more money to extend the life of the operation. In February, the miner said it was reviewing its options for the mine, including a possible sale.
Sandeep Biswas said on Monday the company was focused on the development of new or expanded mines on land it already owned. As a result, Newcrest was unlikely to buy more mines, following a spate of deals involving rival Australian miners. “If there is a bargain-basement price out there for something we like, we will have a look at it, but acquisition is not our preferred mode of growth.”
Newcrest expects to produce up to 2.6 million troy ounces of gold this fiscal year.