UBS says Newcrest Mining could write down Lihir by $2.5b

UBS analysts reckon Newcrest Mining could be gearing up for a $2.5 billion writedown of its troubled Lihir gold mine in Papua New Guinea. Rob Homer

UBS analysts reckon Newcrest Mining could be gearing up for a $2.5 billion writedown of its troubled Lihir gold mine in Papua New Guinea. Rob Homer

Sarah Thompson, Anthony Macdonald, Jake Mitchell | Australian Financial Review

UBS analysts reckon Newcrest Mining could be gearing up for a $2.5 billion writedown of its troubled Lihir gold mine in Papua New Guinea.

Analyst Jo Battershill said Newcrest’s carrying value of $6.1 billion for Lihir, assumes a $US1300 an ounce gold price, which compares with the current price of $US1090 an ounce.

“Based on sensitivities provided in NCM’s FY14 Annual Report, a US$100/oz reduction in the gold price assumption lowers the carrying value by $1.24 billion – so we think a potential $2.5 billion write down is possible,” Battershill said in a research note to clients.

Blue Ocean Equities analyst Steuart McIntyre said in April that if an assumed gold price of $US1200 an ounce was used then Lihir would likely be written down by $2.2 billion.

Newcrest reported strong production numbers for the June quarter on Thursday, with Lihir accounting for 30 per cent of the company’s output of 647,000 ounces.

“Our analysis shows that Lihir has generated just $330m of FCF (free cash flow) since Newcrest acquired it – which we consider a poor outcome for investors,” Battershill said.

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Filed under Financial returns, Papua New Guinea

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