As if Newcrest Mining (ASX: NCM) needed anything else to worry about, the gold miner is now being investigated by the corporate watchdog following accusations that the company briefed analysts prior to its massive write-downs.
On Wednesday and Thursday last week, the company's shares lost 5% and 7% in value, caused by a number of analyst downgrades. Citi, for instance, downgraded its earnings target on Newcrest by 29% to $13, whilst UBS and CS also lowered their targets to $12 and $14.55, respectively. Deutsche Bank and Morgan Stanley also downgraded their targets.
The company has certainly not been a darling for investors over the last two years, and downgraded price targets were to be expected (due to the decreasing value of gold, profit downgrades and poor mining conditions). However, it was the timing of those downgrades that has prompted accusations.
On Friday, Newcrest announced massive write-downs worth $6 billion, which lead to a further 8% reduction in the value of the company's stocks. Furthermore, the company also announced that its final dividend would be cancelled, production reduced, job numbers would be slashed and it would close its Brisbane office. These are the measures that the company sees as necessary to adjusting to a lower gold price.
Considering the downgrades that transpired in the days leading up to the company's write-down announcement, ASIC will investigate the matter with the Australian Securities Exchange, in order to determine if any foul play may have occurred. The investigation is necessary to maintain the integrity and credibility of the market.
CEO Greg Robinson has defended the company's actions leading up to Friday, stating that his company had acted in accordance with its continuous disclosure obligations, however, shareholders have still blasted management for its handling of the update.
The pressure is mounting on the company's top-line management to begin turning things around, as the company's shares have fallen from around $43 in July 2011 – the time when Robinson took over as CEO – to hit as low as $11.40 on Friday.
Foolish takeaway
Amidst the company's 18.5% fall between Wednesday-Friday, Newcrest lost its spot as Australia's third largest miner, and is now sitting behind BHP Billiton (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG). With poor management decisions and increasing volatility in the industry, Newcrest is certainly a stock to steer clear of until things start to turn around.
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More reading
- Newcrest writedown: Told you so
- Newcrest tumbles and the mining boom quickly becomes a distant memory…
Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.
