News gets worse for Newcrest investors

Shares in besieged gold miner Newcrest Mining (ASX: NCM) fell to their lowest level in eight years yesterday as investors continued to punish the company for its June 7 announcement of up to $6 billion in write-downs, pushing shares down to $11.21.

But the write-down announcement itself has caused a wave of new and potentially damaging problems for Newcrest completely separate to the rising costs and plunge in the gold price which sparked the write-downs.

First was the news Newcrest was to be investigated by the Australian Securities and Investments Commission on allegations it tipped off preferred analysts before the news was released to investors. Bloomberg’s Business Week has named three companies, including Citigroup and UBS, that reportedly cut their ratings on Newcrest just days before the announcement was made, raising questions over continuous disclosure obligations.

The company was then put under scrutiny by exchange operator ASX (ASX: ASX) as to why it did not elect to halt shares from trading before the announcement. In response, legal firm Maurice Blackburn is investigating the possibility of filing a class action against Newcrest on behalf of shareholders for not meeting its continuous disclosure obligations.

In 2012 the Maurice Blackburn was involved in the settlement of a class action against National Australia Bank (ASX: NAB) on behalf of 15,000 shareholders for $115 million in relation to disclosure on NABs exposure to financial derivatives.

The Australian Shareholders Association has also called for Newcrest’s chairman Don Mercer to step down according to The Australian, after the announcement debacle and continued problems with the company’s performance. In particular focus is the company’s Lihir Island mine in Papua New Guinea which is the source of more than half of the $6 billion write-downs.

Foolish takeaway

The sharp fall in gold price may have sparked Newcrest’s problems, but the issues have been multiplied by the way management have handled this time of crisis. Investors should question if they still have faith in Newcrest’s management team to turn things around, or if it’s time to cut their losses and move on.

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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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