Newcrest, Australia’s largest gold producer, to Replace CEO, Chairman After A$6.2 Billion Asset Writedowns triggered a regulatory probe

October 10, 2013 Leave a comment

Newcrest to Replace CEO, Chairman After Asset Writedowns

Newcrest Mining Ltd. (NCM), Australia’s largest gold producer, named Sandeep Biswas as chief executive officer in a boardroom clean out after a A$6.2 billion ($5.9 billion) writedown triggered a regulatory probe. Biswas, formerly CEO of Rio Tinto Group’s Pacific Aluminium unit, will replace Greg Robinson in the second half of 2014. Don Mercer, chairman since October 2006, will be replaced in December by Peter Hay, the Melbourne-based company said today in a statement.Newcrest, the worst performer this year of Australia’s 50 biggest publicly traded companies, has lost more than A$20 billion in market value since Robinson became CEO in July 2011. The company has struggled as gold plunged from a record and it missed output targets.

“It’s a step in the right direction,” said Brenton Saunders, a Sydney-based investment analyst with BT Investment Management Ltd. (BTT), which manages about A$50 billion and holds Newcrest shares. “There are so many things that need to change in this business, it’s just one piece of the puzzle.”

Newcrest rose 1.2 percent to A$10.97 at 2:09 p.m. in Sydney trading, giving it a market value of A$8.4 billion, down from A$28.9 billion when Robinson became CEO. The stock has lost 51 percent this year as gold declined 21 percent.

Disclosure Inquiry

The company’s June 7 announcement flagging its writedown is the subject of a disclosure inquiry by the Australian Securities and Investments Commission. Credit Suisse Group AG, Citigroup Inc. and UBS AG were among banks that cut their ratings on Newcrest in the three days before its statement, prompting concern from regulators. Newcrest said an internal review found no evidence of any selective briefings.

“It’s a tightening up of corporate governance that we would be seeking,” from Biswas and Hay, said Andrew Preston, a Melbourne-based senior investment manager at Aberdeen Asset Management Ltd., which oversees about A$18 billion in Australia and holds Newcrest shares.

Biswas is a chemical engineer with experience in commodities including zinc, nickel and copper, Newcrest said. He will join the company from Jan. 1 as chief operating officer.

Mercer and Robinson had faced dissent from shareholders over the A$9.7 billion acquisition of Lihir Gold Ltd. in 2010, said Mathew Hodge, a Sydney-based analyst at Morningstar Inc. (MORN) Robinson was Newcrest’s chief financial officer at the time.

‘Downward Path’

“Newcrest has pretty much been on a downward path, coincidence or not, ever since that acquisition,” Hodge said by phone. “The biggest mistake all managers make is capital allocation, and that’s been true of Newcrest.”

New leaders at Newcrest, the world’s fifth-largest gold producer by market value, may need to consider selling shares, restructuring debt or disposing of assets, BT’s Saunders said. Investors will want Biswas to deliver on plans to raise output at the Lihir mine in Papua New Guinea and Cadia Valley in Australia, he said.

“It needs a lot of shrewd operational decision making and implementation and hopefully someone with his background can bring that,” said Saunders.

Production decreased to 586,573 ounces in the three months ended Sept. 30, from 642,032 ounces in the previous three months, Newcrest said in today’s statement. The company reiterated a forecast of full-year gold output in fiscal 2014 of 2 million ounces to 2.3 million ounces.

“In view of volatile market conditions, the board will continue to ensure the corporate strategy, asset portfolio, operating strategy and balance sheet remain appropriate, assessing all options to enhance shareholder value,” Hay, who joined the board in August, said in the statement.

To contact the reporter on this story: David Stringer in Melbourne at dstringer3@bloomberg.net

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