Though I am on the long side of a NCM trade I thought this was...

Though I am on the long side of a NCM trade I thought this was food for thought in case of any nasty surprises tomorrow.

Both Deutsche Bank and RBC Capital Markets have ratings and reports that are extremely bearish on Newcrest, DB thinks NCM has been lying on its all in costs in its previous report whilst RBC believes there will be a potentially a huge billion dollar plus writeoff tomorrow.



1: Deutsche Bank: 24th January

Newcrest is lowering its production costs, which is a positive, but difficulties to generate free cashflow remain, notes the stockbroker. Deutsche Bank believes the latter will remain the case in the quarters ahead and this will keep the company's debt position in focus.

Never take mining statements for granted. Newcrest's all-in cost of production has been reported at A$921/oz for the December quarter. Deutsche Bank calculates it's more like A$1,280/oz. Deutsche Bank remains of the view that debt remains a major problem and this won't be solved anytime soon as the current assets, combined with a low gold price environment, do not allow for much free cash flow to be generated.

Until this dynamic changes at Newcrest, Deutsche Bank will not reconsider upgrading its Sell rating. Price target rises 10c to $7.30.


2: RBC Capital: 24th January

Newcrest at risk of up to $3bn writedown: RBC

Newcrest Mining could report writedowns of as much as $3 billion when it releases its annual results next month depending on its gold-price assumptions, according to RBC Capital Markets following an assessment of the gold producer’s December-quarter report.

RBC pointed to the “relatively high risk” of a writedown in the value of the Telfer mine in Western Australia of between $300 million and $400 million due to a potential reserves reduction at the venture.

But the writedowns could be much larger across the company if Newcrest decides to cut the gold price it uses for the calculation of reserves and carrying values, RBC said. A reduction of $US100 an ounce in that price could signal writedowns of as much as $2 billion to $3 billion, RBC estimates, based on Newcrest’s sensitivity to the gold price.

Newcrest already reported $6.2 billion in after-tax impairments last August as the price of gold fell, while Kingsgate Consolidated, Alacer Gold and others also cut the book value of assets.
The gold price slid more than a quarter in United States dollar terms through the course of 2013, its first annual drop for 13 years.

However, RBC noted that Newcrest has historically calculated its reserves using a “relatively conservative” gold price relative to the current spot price, and said that for the company to cut the assumed gold price to calculate carrying values was “a lower risk outcome”.

The mine at Telfer had 11.6 million ounces of reserves as at December 31, 2012, but is expected to close in the 2017-18 financial year. RBC said reserves there could be cut by as much as 8 million ounces, which would lead to an impairment.