VANCOUVER — Australian gold major Newcrest Mining (ASX: NCM; US-OTC: NCMGF) has received a crystal-clear message from the Australian Securities and Investment Commission (ASIC): fulfill your disclosure requirements, and don’t leak material information to analysts. On June 18, ASIC fined Newcrest US$1.1 million following an investigation into the miner’s 2014 capital and production guidance.
The case offers a peek into the relationship between analysts and a large miner, and when exactly a company is on the hook to notify exchanges about material changes to performance guidance. In the Newcrest example the infractions occurred between May 28 and June 3, 2013, after the company realized analyst expectations for its 2014 gold production and capital spending numbers were much higher than new internal estimates.
A press release from Newcrest in late 2012 had forecast 35–50% production growth over five years, which would indicate that the company would produce in the range of 3.1 million oz. gold and 3.5 million oz. gold by 2017. Newcrest also reported its 2014 capital expenditure budget at US$1.4 billion. According to case documents, the information was used by Australian analysts from institutions including Bank of America Merrill, Citigroup, Deutsche Bank, Goldman Sachs and JP Morgan to formulate forward-looking annual production and capital-spending estimates.
According to analyst reports up to May 28, 2013, the average gold-production estimate for 2014 sat at around 2.6 million oz. gold, while the average capital estimate was at US$1.3 billion. Internally the company was modelling materially lower production at 2.2 million oz. gold and pegged spending at US$940 million for the year. It’s at this point ASIC contends Newcrest was required to publicly disclose the material change.
Emails began circulating between former investor relations manager Spencer Cole, head of investment relations Steven Warner and chief financial officer Gerard Bond on May 28 that show the company advised analysts to lower their forecasts to align with the new figures ahead of a public announcement. Cole subsequently contacted analysts by phone and email to “guide” expectations.
On June 7, pursuant to a “business review,” the company revised its 2014 production guidance range to between 2 million and 2.3 million oz. gold, while slashing capital spending by 33% to US$940 million.
ASIC noted the company’s price movement on the day of the release, with Newcrest shares opening down 14% at A$11.52 and closing down 7% at A$12.35 per share, on an above-average 15-million shares traded. Between May 31 and June 7 shares dropped 18%, or A$2.77 per share.
Newcrest acknowledged a failure to immediately disclose information to the market, but it said the settlement did not involve any action being taken against individual employees. The settlement is more than double Australia’s previous largest disclosure rules penalty of US$470,000.
“[We] take disclosure obligations very seriously, and sincerely regret the contraventions,” stated chairman Peter Hay following the settlement. “In addition, Newcrest commissioned an independent review of the company’s disclosure and investor relations practices. The full results of the review were released to the ASX in September last year, and Newcrest has since made changes to enhance its investor relations policies and procedures following the recommendations of the review.”
Newcrest shares bounced 2.4%, or A24¢, following news of the settlement en route to a A$10.39-per-share close at press time. The company has traded within a 52-week window of A$6.96 to A$14.17, and has 766 million shares outstanding for a A$7.7-million market capitalization.
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