Costs and Hedge Book Restructuring Deflate Newcrest Profit
By Sarah Belfield
21 Aug 2007 at 10:47 AM GMT-04:00
resourceinvestor.com
PERTH, Australia (ResourceInvestor.com) -- For the 12 months to June 30, Australian gold and copper producer Newcrest Mining [ASX:NCM] posted a net profit from continuing operations of A$72 million (US$57.6 million), a year-on-year drop of 45%.
The net profit figure, reported after tax and minority interests, fell despite a 47% boost in cash flow from operations, which reached A$387.4 million (US$309.9 million).
The fall was also in the face of A$1.7 billion in operating sales revenue, a 21% gain, which was largely - A$1.1billion - composed of gold revenues.
Newcrest said the major factors influencing earnings were higher achieved gold and copper prices and higher mine and depreciation costs.
Out of its revenue, the company was left with a gross profit of about A$304 million after site operating costs of about A$1.25 billion, up 15%, and a net loss of $151.1 million that stemmed from hedge book restructuring.
De-hedged gold ounces helped Newcrest achieve its 2006-2007 average gold sales price of A$682 per ounce, but that was still quite some way below the A$814 per ounce spot prices the company was receiving at the time.
The ounces freed up for the spot market came from a partial restructuring of the company's gold hedge book in November.
Newcrest said the restructure was designed to increase the company's exposure to higher spot prices and so supply extra cash for reinvesting in capital and for reducing debt.
The move, which involved deferring delivery of 1.6 million hedged ounces to the final three years of a four-year period, saw the proportion of gold ounces covered by hedging in 2006-2007 decrease to 55% from 93%.
The cash inflow in 2006-2007 from de-hedged gold ounces was A$160.6 million.
"At current spot prices, the impact of the restructured hedge book on (Newcrest's) cash flow will continue to be positive in the early years," the company told the market.
Newcrest said that regardless of whether hedges had been deferred into future periods, they had to be accounted for based on their original maturity profile. The resulting accounting loss associated with November's restructure was a A$158 million charge to sales revenue.
That loss, plus finance costs of A$23.9 million surrounding the restructure, plus a gain of A$6.9 million flowing from a 2006 restructure, plus an income tax benefit of A$52.5 million meant hedge restructuring pulled down Newcrest's 2006-2007 net profit by A$122.5 million.
As at June 30, the mark-to-market value of Newcrest's gold hedge book was about A$1.17 billion in the red. Commitments represented 13% of gold reserves and 7% of gold resources.
Taking hedging adjustments out of the equation, Newcrest's 2006-2007 net profit figure was A$194.5 million, 40% up on the year-ago figure of A$139 million.
However, if all Newcrest operations are included in net profit comparisons, not just its continuing operations, the drop since 2005-2006 grows to 79% because of the A$218.2 million profit the company made in 2005-2006 upon selling its 22.22% interest in the Boddington gold operation.
Newcrest's six operations were the underground and surface mines at Telfer in Western Australia, the underground and surface mines at Cadia in New South Wales, Queensland's Cracow mine, and the Kencana mine (Newcrest: 82.5%) on Indonesia's Halmahera Island.
As of June 30, the company's ore reserves stood at 33.2 million ounces of gold and 2.7 million tonnes of copper. Mineral resources were 55.2 million ounces and 5.65 million tonnes.
At the time of writing, Newcrest had a market capitalization of about A$8.4 billion.
Newcrest shares last sold at A$25.06 in late afternoon trading on the Australian Securities Exchange on August 21. Meantime, the company's American Depositary Receipts had last traded at US$19.75 each (representing one ordinary share). |
