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Newcrest Mining officially in retrenchment

The tag on the Newcrest Mining‘s (ASX: NCM) Investor Relations web-page reads “Focused on growth”. But in the wake of last week’s news of massive write downs, job losses and a cancelled dividend, Newcrest’s management has announced it is implementing an urgent strategy to do just the opposite — surrender the goal of growth and conserve cash in an attempt to turn around the company’s disastrous year.

Newcrest shares have dropped by 50% in the last six months, closing the day at $11.93 per share yesterday; and have lost 70% of their value since late 2011. The cause has been the deterioration in business conditions from a cocktail of issues including the sharp drop in gold price, high Australian dollar and rising costs, issues also facing miners like BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO).

The retrenchment strategy was announced in the company’s 2014 business plan last week. One of the aims for the 2014 financial year is to cut corporate costs by 20% with a reduction in staff numbers and office closure in Brisbane. Newcrest is also clipping planned capital expenditures by one third, saving $500 million. Remaining capital expenditure of around $1 billion will be spent on the completion of existing projects rather than starting any new ones.

Exploration expenditure is set to be almost halved, from $160 million to $85 million, with focus being shifted away from the discovery of new mines, to extending the life of current mines where the large set-up costs have already been invested.

The reduction in expenditure and cutback on staff is a notable withdrawal from Newcrest’s previous focus on growth, a strategy which produced a record statutory profit of $1.11 billion in the 2012 financial year, up 23% on 2011.

Foolish takeaway

It has been a painful few weeks for Newcrest investors who are riding out the downturn. This is especially so given the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has risen 3.8% in the same six months Newcrest shares have halved in value.

For remaining investors the retrenchment plans may be a slight relief, but with uncertainty around commodity pricing and increasing costs, it could be at least a year until management again starts looking seriously at growth.

Newcrest may have cancelled its final dividend, but if you’re looking for insights on high-yielding ASX shares, get 3 Stocks for the Great Dividend Boom in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

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Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned in this article. 

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