MENU

Why shares in Newcrest Mining are down 9% in five days

Shares in Australia’s largest gold producer, Newcrest Mining (ASX: NCM), continued their relentless slide last week, dropping over 9% despite a small increase in the price for gold.

Newcrest shares opened the week at $8.49 and closed at $7.69 on Friday. This brings Newcrest’s drop over the last month to 22% and almost 78% over the last two years. It’s a huge amount given the price for gold has fallen just 27% over the same period.

This suggests that either Newcrest Mining was heavily overvalued to begin with, or that the lack of investor confidence extends beyond the gold price to the company itself. The answer could be a combination of the two, with new fears emerging about the company’s cash position being raised by Credit Suisse.

The financial service company believes Newcrest is bleeding cash and still needs to cut costs more aggressively and sell assets to stem the losses according to The Wall Street Journal. Credit Suisse reportedly notes that Newcrest will be $210 million below its full FY14 assumptions if current 2014 production guidance is achieved and the current gold spot prices remain constant.

Newcrest has made big efforts to cut costs over the last six months and last month announced that more jobs would be cut from the company’s Telfer gold mine in Western Australia as it scales back production and trims costs.

Despite the reduction effort, a comparison of ‘all-in sustaining cost’ per ounce for the most recent September quarter shows Newcrest’s costs are higher than some other listed Australian gold producers including Alacer Gold (ASX: AQG) and Northern Star Resources (ASX: NST), while just below the costs of Silver Lake Resources (ASX: SLR).

Foolish takeaway

If Newcrest is forced to sell assets in an effort to increase cash flows, investors could be concerned the company will struggle to attract a reasonable price, particularly because the value of mines generally corresponds to the price of gold. After being slugged for more than $5 billion in write-downs earlier this year, it is not a situation any Newcrest investor will be happy about.

Get our top dividend stock -- FREE!

If you prefer a steady stream of dividends to the whims of gold, discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

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

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.