By Peter Ker
Newcrest Mining's dividend drought has continued, despite the gold miner posting a much improved full year profit.
But the miner may point to its result when explaining why its CEO deserves his controversially large remuneration package.
Newcrest's $515 million underlying profit was better than analysts had expected, and 19 per cent better than the $432 million underlying profit recorded for the 2014 financial year. Credit: Rob Homer
Newcrest's $515 million underlying profit was better than analysts had expected, and 19 per cent better than the $432 million underlying profit recorded for the 2014 financial year.
There were no major asset impairments, unlike the past two years when huge impairments created multi-billion dollar statutory losses.
Newcrest Mining chief executive Sandeep Biswas has enjoyed increasing pay.Credit: Arsineh Houspian
There was an asset impairment reversal worth $376 million at Telfer, based on the weaker Australian dollar. Minor impairments were recorded on non-core assets in West Africa and Hidden Valley in Papua New Guinea.
That ensured the statutory profit of $546 million for the 2015 financial year was dramatically better than last year's $2.22 billion loss.
Newcrest shares surged 45c to $11.40 after the result.
The improved profit result, which followed improved gold and copper production, will give the Newcrest board ammunition against those who have criticised the generosity of the remuneration package awarded to chief executive Sandeep Biswas.
Mr Biswas' pay, and other aspects of the company's remuneration report, prompted 44 per cent of voting shareholders to reject the remuneration report at last year's annual general meeting.
The Newcrest board vowed to review the structure of its remuneration during 2015, and on Monday announced changes that will see more of its executives' bonuses subject to performance.
Base salaries will not be reduced, but short term and long term incentives have been changed.
Mr Biswas will now receive 50 per cent of his short term incentives in shares, which will be held in trust for at least one year, and in some cases a maximum of two years.
Minimum shareholding requirements have also been installed for directors and executives, with the chief executive forced to own shares equal to the value of his total fixed remuneration, which includes his base salary and superannuation payments.
But Newcrest confirmed that Mr Biswas' total potential earnings, which could be $10.35 million under ideal circumstances, will not be reduced.
ASX published on Monday suggest Mr Biswas earned a total of $5.63 million in the year to June 30, 2015.
His predecessor, Greg Robinson, earned $4.45 million in the year to June 30, 2015.
DIVIDEND DROUGHT
Newcrest has not announced a dividend since February 2013; prior to the significant slump in gold prices that year.
The absence of a dividend in Monday's financial results means the dividend drought is likely to last for at least three years in total, and possibly longer.
The company is expected to focus on paying down its uncomfortably-high debt and investing in growth before resuming dividends, but there was positive news on that front too; the miner's gearing ratio had fallen from 33.8 per cent one year ago to 29.3 per cent by June 30.
Analysts believe Newcrest is getting closer to a position where it can resume returns to shareholders.
Shaw Stockbroking analyst Peter O'Connor speculated last week that Newcrest was about a 50 per cent chance to pay a dividend during the 2016 financial year, and was very likely to be paying dividends in the 2017 financial year.
GROWTH
Newcrest confirmed on Monday that it was no longer seeking to sell a stake in Western Australia's Telfer mine, and would instead focus on expanding the mine through more "cutbacks" in the open pit.
It also has potential growth options looming at the Wafi-Golpu mine in Papua New Guinea, and at Lihir, where the promising Kapit deposit awaits development.
In a surprising comment, Newcrest said it was undertaking "increased project acquisition activity", in a sign that there could still be life in the recent flurry of mergers and acquisitions in the gold sector.
Newcrest recently farmed into some promising acreage in New Zealand's Hauraki goldfields, via a deal with Laneway Resources.
IMPROVED PRODUCTION
The profit results caps a year that was clearly better than the 2014 financial year for Newcrest. The company produced 1 per cent more gold, 12 per cent more copper and all-in sustaining costs were 4 per cent lower in fiscal 2015 compared with the 2014 financial year.
The gold price rose last week and was fetching $US1113.79 per ounce on Monday morning.
Gold prices have fallen 14 per cent in US dollar terms over the past year, but Australian miners like Newcrest have enjoyed some protection because of the sliding local currency.
Newcrest shares have averaged $12.11 over the past year.