Newcrest Mining Limited Name
Newcrest Mining Limited
Name: Kavita GiriStudent ID No. : 11701472
Newcrest Mining Limited is the biggest gold maker recorded on the Australian Stock Exchange (ASX) and one of the biggest gold makers on the planet. Newcrest has been recorded on the ASX since 1987 (at first as Newmont Australia Limited. Additionally, it is also recorded on the Port Moresby Stock Exchange. Newcrest has a glad history of investigation, revelation, improvement and task of gold mines. Its main goal is to convey prevalent comes back from discovering, creating and working gold/copper mines and the vision is to be the Miner of Choice™. Its branches are situated in Australia, Papua New Guinea (PNG), Indonesia, and Côte d’Ivoire. Current tasks include: Cadia Valley Operations (New South Wales, Australia) Telfer (Western Australia) Gosowong (Halmahera Island, Indonesia) Lihir (New Ireland Province, PNG) Bonikro (Côte d’Ivoire) (Newcrest Mining Limited, 2017). The main purpose or aim of this report is to assess the overall financial stability of the Newcrest Mining Limited, Australia. In this report, major changes in cash flow statement, income statement and balance sheet of the organization from the years 2016 to 2017 has been included.
2. Financial Report of the company
Newcrest Mining Limited prepares its financial report on the basis of Australian Accounting Standard Board (AASBs) and Corporations Act 2001. Similarly, the financial report of the company is made on the basis of the historical costs and the fair value which is estimated at derivatives financial instruments. Further, directors’ report and financial report are prepared on the United State Dollars (US $) unless others specified. This company is referred in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and as per that Instrument, the amounts in the Directors’ Report and the Financial Report are adjusted to the closest million dollars except otherwise specified. It has likewise taken after the compulsory Accounting Standard successful for its present reporting time.
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2017
2017 2016 Note US$mUS$mSales revenue 5(a) 3,477 3,295 Cost of sales 5(b) (2,609) (2,601) Gross profit 868 694 Exploration expenses 11 (53) (32) Corporate administration expenses 5(c) (84) (79) Other income/(expenses) 5(d) (12) 11 Loss on business divestment 6 (10) – Net investment hedge loss 6 (79) – Write-down of non-current assets 6 (15) – Gain on disposal of investment 6 – 18 Class action settlement expense 6 – (12) Profit before interest and income tax 615 600 Finance income 2 1 Finance costs 5(e) (134) (148) Profit before income tax 483 453 Income tax expense 7(a) (164) (118) Profit after income tax 319 335 Profit after tax attributable to: Non-controlling interests 11 3 Owners of the parent 308 332 319 335 Earnings per share (cents per share) Basic earnings per share 8 40.2 43.3 Diluted earnings per share 8 40.0 43.0 Discussion and analysis- income statement
Total revenue ? 6 % Total revenue increased by $71 million due to driven by higher average realised gold and copper prices.
The Statutory profit in the current period includes significant items (after tax and non-controlling interests) with a net expense of $86 million.
The significant items comprised a net investment hedge loss of $62 million representing a prior period foreign exchange loss reclassified from the Foreign Currency Translation Reserve to the Income Statement, a $10 million loss on disposal of Newcrest’s 50% interest in Hidden Valley and a $14 million write-down of capitalized exploration at Bonikro.
The net investment hedge loss and write-down of capitalized exploration are both non-cash items. This was partially offset by lower gold sales volumes, the unfavorable impact on costs from the strengthening of the Australian dollar against the US dollar, increased exploration expense in the current period and higher income tax expense compared to the prior period.
Methods adopted by the companyThe company prepared its financial report on the historical cost basis except derivative financial instruments and ready to sale assets which are stated under the fair value.
It is presented in American dollars which is said to be Presentation (reporting) Currency and the Financial Report are rounded to the nearest million dollars except where otherwise indicated.
The financial report is also prepared under the international Accounting Standards Board (IASBs) and follow the International Financial Reporting Standard (IFRS) which help management to make assumptions, judgements and estimates on assets, liabilities, income and expenses.
The underlying assumptions and estimates are reviewed by the company on an ongoing basis and accounting policies are accepted and constantly applied to all entities involved in the group.
Remuneration Report for Newcrest
It is prepared under the section 300A of the Corporation Act 2001. The information is audited under the sec 308 (3C) of the Corporation Act. Basically the company pays to its employees on the Salaries basis. The average salary are listed according to the number of years working and experiences. The above report shows the basic income of the employees and wages varies according to the years and post of the employees.
Remuneration outcomes and changes
Short term incentive (STI) outcomes for our Executives for the 2017 financial year ranged from 57% to 69% of their potential maximum. As has been the case in previous years, the Board has made adjustments to the STI business outcomes for the effect of commodity prices, foreign exchange rates and other significant items determined by the Board which are considered to be outside the control of Management. In relation to the 2017 financial year such adjustments for non-controllable items included the Cadia seismic event. The cash flow measure was also adjusted for the $63m investment in SolGold Plc. 29.3% of the 2013 Long Term Incentives (LTIs) vested during the 2017 financial year.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2017
2017 2016 Current assets Note US$mUS$mCash and cash equivalents 20 492 53 Trade and other receivables 14 88 134 Inventories 13 556 545 Other financial assets 21(f) 31 – Current tax asset 26 2 Other assets 15 56 69 Total current assets 1,249 803 Non-current assets Inventories 13 1,125 1,170 Other financial assets 21(f) 10 – Property, plant and equipment 11 8,852 8,891 Other intangible assets 16 35 44 Deferred tax assets 17 80 105 Investment in associate 28 64 – Other assets 15 168 178 Total non-current assets 10,334 10,388 Total assets 11,583 11,191 Current liabilities Trade and other payables 455 369 Borrowings 20 – 120 Provisions 18 147 147 Current tax liability 58 13 Other financial liabilities 21(f) 4 21 Total current liabilities 664 670 Non-current liabilities Borrowings 20 1,991 2,040 Provisions 18 307 396 Deferred tax liabilities 17 1,087 948 Other financial liabilities 21(f) – 17 Total non-current liabilities 3,385 3,401 Total liabilities 4,049 4,071 Net assets 7,534 7,120 Equity Issued capital 22 11,657 11,666 Accumulated losses (4,154) (4,347) Reserves 23 (53) (278) Equity attributable to owners of the parent 7,450 7,041 Non-controlling interests 84 79 Total equity 7,534 7,120 Current Assets
The total current assets of the company increased from 2016 to 2017 showing growth in cash and cash equivalents of $ 439 M that helped to increase overall current assets. Whereas, we can see other current assets and receivables were decreased from 2016 to 2017 by 13M and 46M respectively. Paci (2012) stated that the investor will be able to pay its short term obligations if the current asset evaluation is done properly. Whereas Peng (2016) stated the company has used inflated balance sheet method to show its financial position strong to attract the investors.
The company’s total non-current assets decreased by 54M in 2017. This occurred due to sell of inventories and property, plant and equipment at most which are decreased by $45M and $39M respectively. Hirtle et al. (2015) stated that deflation in total assets shows an increase in cash reserves of the company.
In the above table, the total current liabilities has decreased by $6M in total. Where borrowings were paid off but increase in other payables.
Attributable to Owners of the Parent Non- Issued FX Hedge Equity Fair Accu- Total 2017 Translation Settlements Value mulatedcontrolling Capital Reserve Reserve Reserve Reserve Losses Total Interests US$mUS$mUS$mUS$mUS$mUS$mUS$mUS$mUS$mBalance at 1 July 2016 11,666 (340) (16) 78 – (4,347) 7,041 79 7,120 Profit for the year – – – – – 308 308 11 319 Other comprehensive income for the year – 172 43 – – – 215 – 215 Total comprehensive income for the year – 172 43 – – 308 523 11 534 Transactions with owners in their capacity as owners Share-based payments – – – 10 – – 10 – 10 Shares purchased (19) – – – – – (19) – (19) Dividends paid – – – – – (115) (115) (6) (121) Shares issued – dividend reinvestment plan 10 – – – – – 10 – 10 Balance at 30 June 2017 11,657 (168) 27 88 – (4,154) 7,450 84 7,534 The above figure shows that the overall decrease of non-current liabilities by $16 M. The company also decreased its borrowings and paid the provisions of employee benefits. The decrease in liability of the company indicates its strong capacity of working capital and financial position.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2017
The stockholder’s equity share shows the positive change and also the profits earn by the company. But there were no any outstanding shares of the company. The increase in equity will help the investor to evaluate the dividend when provided by the company at the end of the fiscal year. And also the components of the stockholder’s equity are issued retained profits, reserves, treasurer stock, non-controlling interest and capital. There was an increase in reserves and treasure stock but no any change in the issued capital. We can see that some companies use loopholes in accounting standard to increase the overall share price and for a high retained income in their balance sheet.
Shares and interest
“The total number of ordinary shares issue at during 2016 is 11666 million shares (2015: 11657 million shares). The total number of performance rights o issue is 1,296,263 (2015: 1,482,001). 460,515 performance rights were issued during 2016 (2015: 434,972). 646,253 performance rights vested or lapsed during the year (2015: 971,082). ”
Discussion and analysis – Balance sheet
Working Capital? $128m: Due to timing of tax payments, higher payables and current tax liabilities because of current year profits there is a decrease in working capital. There is also a higher receivable because of rises in crude oil and product prices in 2016 and this impact to lower the Australian dollar.
2. Property, plant and equipment ? $88m: Due to capital expenditure and accruals there is a increase in property, plant and equipment. And also the there was a maintenance expenses of $323 million and capitalised interest of $ 2 million.
Intangibles ? $12m: The company has also invested in software of $30 million so there is a increase in intangibles. And there is the partial offset depreciation of $18 million and disposals of $5 million.
Net debt ? $22m: The net debt is increased by $22 million to $454 million at 31 December 2016.
The other non-current assets and liabilities have been decreased by $72 million .References
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2017
2017 2016 Cash flows from operating activities Note US$mUS$mReceipts from customers 3,509 3,332 Payments to suppliers and employees (1,888) (1,927) Interest received 2 1 Interest paid (122) (138) Income taxes paid (34) (28) Dividends received – 1 Net cash provided by operating activities 10 1,467 1,241 Cash flows from investing activities Payments for plant and equipment (286) (197) Mine under construction, development and feasibility expenditure (193) (214) Production stripping expenditure (90) (54) Exploration and evaluation expenditure (58) (44) Information systems development (13) (6) Interest capitalised to development projects – (1) Proceeds from sale of investments 6 – 88 Proceeds from sale of property, plant and equipment 2 1 Payments for investments 28 (63) – Cash outflow on sale of subsidiary, net of cash held by the subsidiary 29 (27) – Net cash used in investing activities (728) (427) Cash flows from financing activities Proceeds from borrowings: Bilateral bank debt 295 2,160 Bank loan – 20 Repayment of borrowings: Bilateral bank debt (320) (3,110) Private placement notes (125) – Bank loan (20) – Payment for treasury shares (19) (6) Contingent consideration received – 9 Dividends paid: Members of the parent entity (105) – Non-controlling interests (6) (32) Net cash used in financing activities (300) (959) Net increase/(decrease) in cash and cash equivalents 439 (145) Cash and cash equivalents at the beginning of the year 53 198 Cash and cash equivalents at the end of the year 20 492 53 DISCUSSION AND ANALYSIS OF CASH FLOW
Cash flow from operating activities of $1,467 million was $226 million (or 18%) higher than the prior period as a result of higher average realised gold and copper prices and copper sales volumes. This was offset by cash flow related to investing activities which increased by $301 million compared to the prior period.
The increase in investing activity cash flows largely relates to other investing activities, including payments totalling $63 million to acquire a 14.5% interest in SolGold Plc and a cash outflow of $ 27 million associated with the disposal of Hidden Valley.The increase in current period cash flows from investing activities also included a $98 million increase in capital expenditure at Lihir across production stripping, sustaining capital and major project capital. Free cash flow for the current period of $739 million was $75 million lower than the prior period. All operations were free cash flow positive in the current period.
We have audited the financial report of Newcrest Mining Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the Directors’ Declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including:
giving a true and fair view of the consolidated financial position of the Group as at 30 June 2017 and of its consolidated financial performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Issues of Remuneration
In 2016, Caltex found that franchisees were underpaying their employees like wage fraud, visa fraud. So after this Caltex continues to work under Fair Work Ombudsman (FWO).
They reviewed the franchise model and found that their model is sustainable which allows franchisees to draw wage and make profit and pay its employee accurate wage rate. They also found a total $20 million during investigation which came from under paid to franchisee employees.
Issues with Franchisees Owner
All the franchise owner protest on the street of Sydney because Caltex is cutting off more amount of money. So because of it the owner has to work for more hours and even it was hard to make enough money for them to sustain the life. And also they asked for the redesign of the model and pleading to government to help for them.
The Caltex service station owner have come up on the street of Sydney for the equitable business model. The reason behind it was they had work for long hours and not making enough profit out of it.
Inventories 2017 2016
Current US$mUS$mOre stockpiles 144 140
Gold in circuit 27 27
Bullion and concentrate 83 80
Materials and supplies 302 298
Total current inventories (1) 556 545
Non-Current Ore stockpiles 1,125 1,170
Total non-current inventories (1) 1,125 1,170
Ore stockpiles, gold in circuit, bullion and concentrate are physically measured or estimated and valued at the lower of cost and net realisable value. Cost represents the weighted average cost and includes direct costs and an appropriate portion of fixed and variable production overhead expenditure, including depreciation and amortisation, incurred in converting materials into finished goods. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale.Ore stockpiles which are not scheduled to be processed in the twelve months after the reporting date are classified as non-current inventory. Materials and supplies are valued at the lower of cost and net realisable value. Any allowance for obsolescence is determined by reference to stock items identified.
Trade and Other Receivables 2017 2016
Current US$mUS$mBullion awaiting settlement 15 3
Metal in concentrate receivables 43 95
GST receivable 22 28
Other receivables 8 8
Total current receivables 88 134
The receivables are recognised on fair value with directly attributable transaction costs and measured at amortised cost less impairment losses. If there is an impairment loss on receivables, then impairment testing is performed
Property, Plant and Equipment
Exploration ; Deferred Mines Plant and Evaluation Feasibility Under Production Mine Expenditure Expenditure Construction Stripping Development (1) Equipment Total US$mUS$mUS$mUS$mUS$mUS$mUS$mAt 30 June 2017 Cost 442 294 83 459 7,741 7,473 16,492 Accumulated depreciation and impairment (80) – – (308) (3,734) (3,518) (7,640) 362 294 83 151 4,007 3,955 8,852 Year ended 30 June 2017 Carrying amount at 1 July 2016 393 278 102 148 4,099 3,871 8,891 Expenditure during the year 58 26 115 90 1 286 576 Expenditure written-off (53) – – – – – (53) Depreciation – – – (88) (229) (350) (667) Disposal of assets (4) – – – – (4) (8) Write-down of assets (Note 6) (15) – – – – – (15) Business divestment (Note 29) (6) – – – – – (6) Foreign currency translation 1 1 4 1 71 56 134 Reclassifications/transfers (12) (11) (138) – 65 96 – Carrying amount at 30 June 2017 362 294 83 151 4,007 3,955 8,852 It is measured at cost less accumulated depreciation and impairment losses. And also it is depreciated through straight-line method on their expected useful lives. And leasehold are also amortized on useful life.
Plant and equipment and mine development is carried at cost less accumulated depreciation and any accumulated impairment losses. The initial cost of an asset comprises its purchase price or construction cost, and any costs directly attributable to bringing the asset into operation, the initial estimate of the rehabilitation obligation, and for qualifying assets (where relevant), borrowing costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset.
Depreciation and AmortisationItems of plant and equipment and mine development are depreciated over their estimated useful lives.
For the remainder of assets, the straight line method is used, resulting in estimated useful lives between 3 – 20 years, the duration of which reflects the specific nature of the asset. Estimates of remaining useful lives, residual values and depreciation methods are reviewed annually for all major items of plant and equipment and mine development. Any changes are accounted for prospectively.
“The carrying amounts of assets are reviewed to determine if there is any indication of impairment. If any such indication exists, these assets’ recoverable amounts are estimated and, if required, an impairment is recognised in the income statement. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. In assessing the carrying value of property, plant and equipment, management considers long term assumptions relating to key external factors including Singapore refiner margins, foreign exchange rates and crude oil prices; any changes in these assumptions can have a material impact on the carrying value. Reconciliations of the carrying amounts for each class of property, plant and equipment are set out below:”
The property, plant and equipment are calculated on cost less accumulated depreciation and impairment losses. Cost includes to those that are attributable during the acquisition of the asset. And the cost of self-constructed assets includes the cost of direct labour and and materials. The cost of property, plant and equipment involves the cost of maintenance, restoration and decommissioning at the end of their lives.
Fair value of financial assets and liabilities
The company measure the fair values for both financial and non-financial assets and liabilities. The company has its own frame work for the measurement of the fair value. The company uses market observation for the measurement of fair value of asset or a liability. The fair values are measured on the following techniques.
Level 1: identical assets or liabilities are measured on the quoted prices.
Level 2: inputs observable for the asset or liability other than the quoted prices in level 1, either directly as prices or indirectly derived from prices.
Level 3: inputs that are not observable for market data (unobservable inputs).
Net tangible assets are net assets regarded to members of Caltex. The weighted average method is used to calculate the net tangible assets. The net assets per share was 263 million.
It is considered to be cash generating units and is tested for impairment. It is stated at cost less any accumulated impairment losses. The negative goodwill is allocated in the consolidated income statement.
AmortisationIt is included in the income statement on the straight-line basis over the useful lives of intangible assets. And the other intangible assets are amortised from the date they have been used.
If any indication is found in intangible assets, an impairment is recognised in the income statement.
The assets of finance leases are included in the property, plant and equipment at the less present value or the fair value with a correspondence of finance lease liability. The contingent rentals are written off in the period they incurred. And also the capitalised leased are depreciated over their useful life.
The minimum lease payments are divided between the finance charge and the deduction of the outstanding liability. These lease payments are shown in the income statement.
The payments made under the operating leases are adjusted in the net profit or loss. The contingent rentals are shown as an expense when they are incurred. Lease incentives are shown in the income statement of the total expense on the straight line basis. In 2016 $478,760 contingent rentals were paid. The expenses of $167,980,000 were found in the income statement related with operating leases.
The following items are not probable that the company have to make future payments and are not able to be measured.
Legal and other claims
The group is involved as a plaintiff or defendant in legal proceedings where appropriate the Caltex takes legal advice. But the outcome of any proceedings won’t have any material effect on its financial positions or financial position.
A liability has been found for any known losses and such losses are capable of reliable measurement.
Income tax expense
US$mUS$mReconciliation of Prima Facie Income Tax Expense to Income Tax Expense per the Income Statement
Accounting profit before tax 483 453 Income tax expense calculated at 30% (2016: 30%) 145 136 De-recognition of deferred tax liabilities – (8) Other 5 (5) Adjustments on Significant items: 5 (13) Loss on business divestment 3 – Net investment hedge loss 7 – Write-down of non-current assets 4 – Gain on disposal of investment – (5) 14 (5) Income tax expense per the Income Statement 164 118 2.5. Income tax
Income tax expense on Statutory profit in the current period was $164 million, resulting in an effective tax rate of 34%, which is higher than the Australian company tax rate of 30%. The effective tax rate was higher than the Australian company tax rate primarily due to the book tax effect associated with the net investment hedge loss and no income tax benefit recognised on both the loss on disposal of Hidden Valley and the write-down of capitalised exploration at Bonikro.
Income tax expense on Underlying profit in the current period was $181 million, resulting in an effective tax rate of 31%. The effective tax rate was higher than the Australian company tax rate as a result of higher levels of overseas exploration expenses not deductible for tax purposes.
It comprises with the deferred tax expense and current tax expense. The current tax is the expected tax payable on the income for the year. But deferred tax expenses shows the changes in temporary differences in the financial position between the carrying amount of an asset or liability. It is also a way to recognised deferred tax. “A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.”
Conclusion and Recommendations:
The overall report helps to see the overall change in expenses and income of Caltex. it shows the significant changes in income statement, balance sheet and cash flow statement from 2015 to 2016. Moreover, there was a change in substantial revenue and profits compared to 2016. The revenue of the company did not rise from decreasing oil barrel prices rather it increased by decreasing inventories loss and raised profit from other income.
After looking at balance sheet of Caltex Australia, the company need to deploy zero based budgeting system in their operations. This method will help the company to reduce its overall expenditure. The company should also take advice from financial experts, which will help to overcome the losses they suffered from the exchange rate. There is huge demand in Australia so that the company can increase its sale and achieve higher profitability from operations.
Newcrest’s business, operating and financial results and performance are subject to various risks and uncertainties, many of which are beyond Newcrest’s reasonable control. Set out below are matters which Newcrest has assessed as having the potential to have a material impact on the business, operating and/or financial results and performance of the Group. These matters may arise individually, simultaneously or in combination.
Market price of gold and copper
Fluctuations in metal prices can occur due to numerous factors beyond Newcrest’s control, including macroeconomic and geopolitical factors (such as financial and banking stability, global and regional political events, changes in inflationary expectations, interest rates, and global economic growth expectations),
a US$10 per ounce change in the average realised gold price is estimated to have an impact of approximately US$20 million.
a US$0.05 per pound change in the average realised copper price is estimated to have an impact of approximately US$10 million.
Foreign exchange rates
The majority of Newcrest’s revenue is realised in, or linked to, the US dollar on the basis that metals such as gold and copper are traded globally based on prices quoted in US dollars. Given the geographic spread of Newcrest’s operations, Newcrest’s operating costs are exposed to multiple currencies, including a portion of costs at each operation being denominated in the local currency.
a A$0.01 change in the AUD:USD exchange rate is estimated to have an impact on EBIT of approximately US$20 million.
Operating risks and hazards
Some of Newcrest’s operations are in areas known to be seismically active and are subject to the risks of earthquakes and related risks of tidal surges and tsunamis, which are difficult to predict. Some of Newcrest’s operations may also experience other specific operating challenges relating to ground conditions and rock temperature.
Liquidity and Indebtedness
In addition to cash flows from operating activities, Newcrest has a range of debt facilities with external financiers – including unsecured bilateral bank loan facilities and corporate unsecured senior notes (or ‘bonds’). Newcrest has sought to structure these debt facilities to have varying maturities so that its refinancing obligations are staggered. Although Newcrest currently generates sufficient funds to service its debt requirements, no assurance can be given that Newcrest will be able to meet its financial covenants, its debt repayment obligations, or be able to refinance the debt prior to its expiry on acceptable terms to Newcrest. If Newcrest is unable to meet its financial covenants or debt repayment obligations when required or refinance its external debt on acceptable terms, its financial condition and ability to continue operating may be adversely affected.
‘Newcrest Mining Limited’ 2017, pp. 1-22, Business Source Complete, EBSCOhost, viewed 5 April 2018.