Newcrest mining limited company is a leading international gold mining company, and the largest gold miner in Australia, with its headquarters based in Melbourne, Victoria. The company trades at the Australian Stock Exchange (ASX) under the ticker NCM, and the New York ADRs (American Depositary Receipts) under the code NCMGY.
Newcrest is a global top 10 gold mining company, according to the company’s website www.newcrest.com.au, where it releases most of its information, including financial results. Newcrest’s financial year ends on June 30 of each year. The company provides quarterly and semi-annual reports in between the financial period.
Newcrest Mining Ltd reports a sales growth of 11 percent, from A$2.531 billion in FY09 to A$2.802 in FY10. Data on Newcrest Mining Ltd’s financial information can be retrieved from the company’s website, while extracts can be viewed from the appendix. Revenues have been primarily pushed by gold sales, which increased by 7 percent to 1.745 million oz from 1.637 million oz in the previous year (Newcrest.com).
Copper sales have declined by 7 percent, though the declined sales did not offset the high commodity prices in 2010, which saw Newcrest increase revenues by 11 percent and 10 percent for gold and copper respectively.
The company has effectively and efficiently controlled its costs, and thereby reduced the total cost of sales from A$1,638M to A$1,569M in FY10, and successfully contained mine production costs, with costs rising by A$1 million. The increased profits and contained costs have led to expanded profit margins for the company, as the EBITDA margin and EBIT Margin have both increased by 10 percent to 51 percent and 40 percent respectively in FY10.
Newcrest Mining Ltd strengthened its cash position in FY09 with a A$793 million equity issue. Cash flow from operations has increased from A$1,024 million in FY09 to A$1,303 million in FY10. Dividends and minority interest have almost doubled from FY09, at A$60 million, to A$112 million in the 2009-2010 financial period. the Newcrest average for cash costs after by-products for the FY10 stand at US$306 per ounce, which is lower than the July 2009 – June 2010 industry average of US$521 per ounce, which not only has a positive effect in terms of cash flow but also puts the company in a better position in terms of EBITDA (earnings before interest, tax, depreciation, and amortization).
As per the balance sheet, both Newcrest Mining Ltd and the acquired Lihir Gold Ltd are independently in a strong financial position, primarily characterized by the lack of gearing. Newcrest has a book value of A$15 billion, as of June 30, 2010, and would remain in a strong financial position if it maintains gearing levels of between 1 and 5 percent. Newcrest Mining Ltd, therefore, has a strong financial platform that would enable the company to pursue growth opportunities in the industry.
The Sydney Morning Herald (2011) reports that Newcrest Mining Ltd has increased its net profits by more than 100 percent in the first half of its financial year, as compared with the same period in the previous year. According to the Sydney morning herald (SMH), Newcrest reports a net profit of A$437.8 million for six months to December 31, from A$176.2 million in a similar period in the 2009-2010 financial period.
This represents an increase of 148.47 percent, implying that net profits for the Australian-based mining company have more than doubled in a space of one year. As a result, the underlying profit for the company rose by 96 percent (to A$523.1 million). Newcrest revenues have also increased for the said period, from A$1.187 billion to A$1.966 billion, representing a 65.6 percent revenue increment. Increased fortunes have seen the company increase the interim unfranked dividend by 5 cents to 10 cents per share.
The company’s share prices are highly likely to increase following the positive revenue and profit announcements. Newcrest Mining Ltd attributes the increase in profits to increased production from its mines, with gold production increasing by 70 percent from the previous equivalent period, and the inclusion of assets acquired from Lihir Gold Ltd, following the successful merger in 2010.
Newcrest Mining Ltd shares closed at A$41.100 on 12 April 2011, while the opening price of A$42.390 represents the closing price of the shares in the previous day, that is 11 April 2011 (ASX). The price change of A$1.29 between the two days represents a -3.04 percent decline in value in the share price. This could be due to some profit-taking since the company’s share has been on an upward rally following the high-profit announcement a few days earlier.
For the year ended June 2010, Newcrest Mining Ltd reported a gross profit of A$1,233.1 million, up from A$892.8 million in the previous year. The record high gold prices in the 2009-20101 financial year have significantly contributed to the attainment of the high-profit figures.
Efficient management and control of costs have led to high net profits of A$556.9 million, up from A$248.1 million in the preceding year. Effective cost control can be translated from the improved profit margins. Correspondingly, the earnings per share have increased from 0.53 to 1.15 in the year ended June 30, 2010, an increase of over 100 percent.
The underlying profit rose by A$280.6 million to A$763.7 million in the year ended June 2010, while the statutory profit increased from 248.1 in FY09 to A$556.9 in FY10. The increase in the underlying profits is mostly attributable to increases in revenues and deferred mining and inventory items, which increased by A$271 million and A$95.6 million respectively. A$80.4 million in tax and minority interest, and a A$38.4 million depreciation charge restricted further increases in the underlying profit figure.
As of June 30, 2010, deferred income tax constituted the largest liability for the mining company, while long-term debt balance sheet items had assumed that position in the prior year. Deferred income tax, in this case, is a non-current liability since it is not payable within one year.
In its industry, Newcrest cannot set the prices of its products, including gold and copper; as such prices fluctuate by movements in the international gold and derivative markets. As such, the company’s profits depend on its productivity, and how it manages and controls the costs of operations. Newcrest Mining Ltd therefore recognizes and reports its revenues on actual sales of gold and other mined minerals, and the sales of its reserves. Sales are based on the market-determined prices at the moment of sale.
Ernst & Young, a global auditing firm, is Newcrest’s auditor and provides an independent audit report to shareholders and the various stakeholders on Newcrest’s financial reports. The company pays an audit fee of A$200,000.
Sustainability reporting is used by companies to boost their images in the general public. A sustainability report relates to the triple bottom line, that is people, profits, and the planet. There are several approaches to corporate social responsibility (CSR), the main ones being direct funding programs, targeting the needs of staff, non-financial support to the community, and investment in the environment.
Companies also choose to implement corporate social responsibility for various reasons, be it pressure from within or outside the company, as a tool for risk management, improved accountability in the company, or enhanced stakeholder management (Crane and Matten, 211).
Companies in the manufacturing and mining sector are more prone to public scrutiny due to their negative interaction with the environment. Mining companies degrade the earth, cause erosion, and negatively affect the plantation, and environment, around the mining area. When mining is done on a large scale, for instance in gold mining, large pits develop as companies use explosives and other destructive tools in the mining process. The resulting land is usually unusable, hence a major disadvantage of mining.
Mining companies will have to develop sustainability reports to ensure to all their stakeholders that the company is carrying out its activities in an environmentally responsible manner.
Newcrest, as a leading gold and gold-copper mining company, acknowledges the fact that its activities may impact and influence the environment around it. As such, Newcrest focuses on three main elements in its sustainability report, as listed below:
Social responsibility – Newcrest reports on some of its activities and programs that put the company in a strong position to achieve its social goals. Newcrest has set up several recruitment and retention strategies that the company acquires and retains the best talent in its industry. The implemented human resources strategies also work towards ensuring low employee retention rates and thereby reducing interruptions during operations.
Newcrest also works towards ensuring a stable and healthy relationship with local communities and governments in the host countries that the company operates in. by committing itself to use the best practices in the industry, Newcrest can maintain a mutually beneficial relationship with host governments, and thereby maintain its operating license. The company also ensures policies that respect and protect the different cultures of all its employees, promoting diversity in the workforce and ensuring equal opportunities for all.
Health and safety – the workforce of the mining company are constantly exposed to potential safety risks due to the nature of the industry. Newcrest Mining Ltd has implemented various sets of safety management initiatives to ensure the health and safety of its workforce. The Target Zero program, for instance, led to improved safety performance for the company in the 2007-2008 operating year, according to the company’s website.
As a result of the Target Zero program, no fatalities were reported on the company’s employees. Less injury-reported cases were reported, as measured by the lost time injury frequency rate (LTIFR), which measures the lost time injuries for every one million exposure hours. In 2007-2008, Newcrest recorded an LTIFR of 0.8. The number of injuries also went down, as measured by the total recordable injury frequency rate (TRIFR). The TRIFR decreased from 8.4 of the previous year to 7.0 in 2007-2008, a decline of 22 percent.
Environment – Newcrest Mining Ltd consumes a lot of resources in its operations, including significant amounts of energy, water, and other resources. The company, therefore, carries out its operations in a responsible manner to improve its environmental performance and lead to the better management of resources and disposal of waste. No major environmental incidents or accidents were reported in the 2007-2008 financial period.
Newcrest has improved its environmental performance over the years, as illustrated by the sharp fall in the environmental incident frequency rate, which measures the rate of environmental incidents for every one million hours of exposure. The environmental incident frequency rate declined by more than 50 percent, from 4.3 in the previous year to 2.2 in the 2007-2008 year. Newcrest reports that it implements energy conservation policies, for instance, the company has registered under the Federal Department of Climate Change, under the 2007 National Greenhouse and Energy Reporting Act.
This implies that Newcrest will have to submit its greenhouse and energy data, and will therefore evaluate its energy efficiency and greenhouse gas reduction strategies. This has seen greenhouse gas emissions by the mining company fall by 17.7 percent per tone of ore treated in 2007-2008, from levels of the previous year.
Appendices
References
Australia Stock Exchange (ASX). Newcrest Mining Limited (NCM). Web.
Crane, Andrew, and Dirk Matten. Business Ethics: Managing Corporate Citizenship and Sustainability in the Age of Globalization. London: Oxford University Press, 2007. Print.
Newcrest Mining Ltd, 2011. Web.
The Sydney Mourning Herald. Newcrest boosts net profit. Web.