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What Newcrest Mining’s latest news means for investors

In its ongoing battle to keep ahead of plunging gold prices, Newcrest Mining (ASX: NCM) is again cutting jobs to attack rising costs and dropping margins. Reports have stated that a yet-to-be-confirmed number of fly-in-fly-out workers and contractors are to be cut from the company’s Telfer mine in Western Australia.

The mine employs up to 1,800 people, which Newcrest wants to reduce over the next 6-12 months in efforts to increase the margin on each ounce of gold it sells. The job cuts are on top of 150 job losses in March this year, mostly from the company’s Brisbane and Melbourne offices, as well as 150 jobs cut from its Lihir mine in Papua New Guinea.

The Lihir cuts represent 5 to 7% of the mine’s workforce and is part of Newcrest’s revised 2014 budget to cut both overheads and capital expenditure.

It’s not the first time Newcrest has cut jobs at the Telfer mine. In 2008, the company reduced the mine’s workforce by around 400 from 1,300 in response to a review of high costs around the time of the global financial crisis. At that point, Newcrest shares were trading for around $17, compared to today’s price of $11.10.

Job cuts are not isolated to Newcrest however. BHP Billiton (ASX: BHP) has started talks with contract mining staff at its Pilbara iron ore mine, which has also been hammered by slumping prices this year, while Rio Tinto (ASX: RIO) has also announced numerous job reductions over the last three months to try and stay ahead of falling commodity prices.

Foolish takeaway

The latest cuts will put increasing pressure on the mining services industry and those directly affected by the cuts, but for investors it is a signal that Newcrest is serious about running the rule over every inch of its operations. Going forward this will result in a leaner and meaner operation which will benefit it if, or when, there is a rise in the price of gold.

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

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