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New problems for Newcrest Mining

While many listed companies are experiencing a positive share spike thanks to the so called Santa rally, Christmas is not looking particularly bright for Australia’s largest listed gold miner Newcrest Mining (ASX: NCM).

Newcrest announced today that investors are set to proceed with a class action against the company and that it has received correspondence from listed legal firm Slater & Gordon Lawyers (ASX: SGH), who have been instructed to commence the class action in the Federal Court of Australia.

The action is being taken in relation to questions over Newcrest Mining’s release of information just before the company’s 7 June 2013 business update which announced writedowns of between $5 billion and $6 billion.

Prior to the ASX market announcement Newcrest held an analyst briefing. Investors feel this may have given the analysts a heads-up on potential problems within the company before the rest of the market. Newcrest Mining chief executive Greg Robinson was quoted in the Sydney Morning Herald saying: “There were briefings, there were discussions with analysts as our investor relations group do on a regular basis”. However Robinson denied the company had disclosed any information not already publicly available, continuing: “From our point of view we don’t think they’ve done anything incorrect, we think they’ve done the job they are meant to do”.

His comments were supported by an independent review conducted by former Australian Securities Exchange chairman Dr Maurice Newman, which concluded that there was no ‘smoking gun’ to implicate Newcrest. However Newman made several key recommendations, including that Newcrest ensures the release of all external presentation materials to the ASX, as well as establishing a prior vetting process for investor material.

Newcrest has been invited to enter into confidential discussions with Slater & Gordon, failing which the legal firm has been instructed to commence proceedings on shareholders’ behalf.

Foolish takeaway

Newcrest Mining shares lost almost 3% on the news, adding to the disastrous year which has seen more than 66% wiped off the company’s market capitalisation. Combined with the current miserable outlook for gold prices over the start of 2014, this Christmas looks like a gloomy one for Newcrest Mining.

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

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