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Newcrest Mining battles to restore investor confidence

There was a time, perhaps not long ago, that Australia’s largest listed gold miner, Newcrest Mining (ASX: NCM), would have seriously been considered by many as the ‘miner of choice’, a phrase the company took the time to trademark.

That was back in early 2012 when the price of gold hovered around US$1770 per ounce and Newcrest’s share price was a lofty $35. However over the last five months as the price of gold tumbled and Newcrest’s shares have fallen to less than half that level, the case for being ‘miner of choice’ has been increasingly difficult to support.

The $6.2 billion in write-downs announced last month certainly didn’t help. Neither did the hard questions about the company’s compliance with continuous disclosure policies after an analyst briefing that came prior to the announcement. The briefing resulted in an investigation by the Australian Securities and Investments Commission (ASIC) as well as interest by two separate legal firms reviewing potential class-action suits on behalf of shareholders.

Many other Australian listed gold miners like Silver Lake Resources (ASX: SLR) and Kingsgate Consolidated (ASX: KCN) announced write-downs and impairments, but the battering to investor confidence was particularly high with Newcrest.

This is something the company is battling hard to restore. An independent report commissioned to investigate the analyst briefing found no ‘smoking gun’ that Newcrest had acted improperly, though the ASIC investigation is still underway.

Another important move was to dock chief executive Greg Robinson of incentive payments for the 2013 financial year. This is a crucial step towards restoring investor faith in the company’s board after such a dismal year. Some might argue that he is lucky to have a job, let alone his remuneration package worth $2.73 million, but it is a sign the board are on shareholders’ side.

The task for Newcrest management now is to restore investor confidence in the operations of the company, focusing on continued cost reductions while maintaining production to cover ground lost by the falling gold price.

Foolish takeaway

Newcrest’s mantra of ‘miner of choice’ is currently a target the company needs to reach. It can’t do that until it has restored faith in its shareholders. Only then can it become a slogan to boast about.

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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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