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What will 2014 bring for Newcrest Mining?

Managers and investors in Australia’s largest gold miner Newcrest Mining (ASX: NCM) have had a disastrous year. Shares have plunged 68% in 2013, as the gold price sunk and the company announced billions of dollars in writedowns.

After starting out the year at around US$1,700 per ounce, the price of gold plummeted in April and continued its slide throughout the year to sit 28% down today.

The resulting sell-off of gold miners was swift and brutal. Some producers fared better than others, with Regis Resources Limited (ASX: RRL) down 44%, while Silver Lake Resources (ASX: SLR) was hammered 87%.

However as the year draws to a close, we can make several key assumptions about the year ahead for Newcrest.

Production will likely increase

Newcrest anticipates group gold production for FY14 will be between 2.0 and 2.3 million ounces and thus likely higher than FY13’s total production of 2.1 million ounces.

Production from the company’s two most important mines, Lihir and Cadia Valley is expected to be around 15% higher after recent expansion projects.

Costs will be lower

Maximising cash flow is a central objective for Newcrest in the short term. Positive progress has already been made to lower all-in sustaining costs. They were down 15% in the September quarter from the 2013 average and the hope is this momentum will continue.

After taking a mind boggling $6.2bn of impairments and writedowns in FY13, capital expenditure will be trimmed back from $1.9 billion in FY13 to just $1 billion in FY14.

Gold price pain will continue

For 2014 the general analyst consensus is for gold prices to remain at current levels or fall further on the back of a strengthening U.S. economy and the trimming of the Federal Reserve’s bond buying program.

Goldman Sachs expects gold to trade at $1,110 next year according to Bloomberg, and although outgoing Newcrest chairman Don Mercer feels the outlook is positive, he acknowledged at the company’s AGM that “predicting the gold price is a personal judgement.”

Foolish takeaway

Newcrest’s stated objective for FY14 is to be cash flow positive at a gold price of $1,450 per ounce. Given the current gold price sits below that level and the bearish outlook for 2014, Newcrest’s management team will have their work cut out if they are to lift performance and meet their goal.

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

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