Newcrest disclosure review fails to find “smoking gun”

A self-commissioned disclosure review by Newcrest Mining has mostly absolved the gold miner of any major misconduct.

The review said the company had not carried out analyst briefings without bringing everyone into the loop and instead pointed to delayed reaction to old information for several broker downgrades.

ASX chairman Dr Maurice Newman, who conducted the review, said last week he did not find the “smoking gun” proof that pointed to misconduct by Newcrest, the SMH reported.

He said the review did not find wrong doing in the company’s continuous disclosure requirements.

Rather Newman panned analysts and investors’ capability of comprehending Newcrest’s published material, and said they had not recognised the effect of sliding gold prices on Newcrest’s business model.

“(Newcrest) provides ample information on a regular basis. However this information does not always appear to have been understood in the marketplace,” Newman said.

“Most analysts seemed to be slow to adjust their research to the changed conditions presumably on the assumption the (gold price) slump would be temporary.”

He did find, however, many small occasions where Newcrest failed to adhere to its own conditions regarding meeting with the investment community, including a condition that a minimum of two Newcrest representatives grace all important meetings with investors and analysts.

He also said Newcrest may not have followed a condition that the Head of Investor Relations should be the only point of contact within the company for all investors.

Newman has charted out 17 recommendations for Newcrest , mainly about how it should work together with the investment community.

But Newman also admitted that since the Australian Securities and Investments Commission was simultaneously carrying out its own investigation into the matter, his own review was hindered.

He admitted he had not completely examined Newcrest’s e-mail system, or trading data around when the restructuring took place at the company on June 7, or written records of analysts who downgraded the stock a few days before June 7.

He could not speak to many members of the broking community as they were bound by restrictions under the ASIC investigation.

“This was beyond my terms of reference which were established having regard for the importance of timeliness. However I have reviewed a sufficiently large representative number to satisfy myself in reaching the conclusions I have,” he said.

Newman’s report comes as Newcrest is under investigation from ASIC for its disclosure rules regarding market-sensitive information.

The investigation is particularly interested in what the company told analysts immediately before its June 7 release, which included $6 billion in writedowns and production downgrades.

The ASIC investigation could take a year to finish.

According to Shaw Stockbroking analyst Vincent Pisani, agreed Newman faced the constraint of lack of access to key players when compiling the report. “There were more caveats at the beginning of that report than I have ever seen, but I guess he could only work to the degree that he was allowed to work, and you can’t get into other people’s e-mails outside the firm unfortunately,” he said.

“So his investigation was obviously fairly restricted, and restricted by a lot of compliance officers at the bigger brokers that would normally keep quiet until they finish their own investigation.”

But Pisani added Newman’s report still carries weight due to the respect he commands in the investment community.

“He would have done everything in a super-above board way,” he said.

“I think it was conducted properly and I think he has done a good job with the availability of the information that he was able to act with.”

According to Newman, it is no longer easy for companies to keep analysts in the loop of developments because they were becoming scarce.

“Due to cost cutting, analysts have to cover more companies, and so have to spread their time more thinly,” he said in his report.

“Perhaps in recognition of this thinning of talent, there is a tendency for many firms and analysts to be followers and to stay within consensus rather than be outliers. This saves reputations if research is wrong but in keeping with peers.”

Australian Shareholders Association’s Stephen Mayne said recently the company is focusing on disclosure to distract people from the bigger problems at the company.

“Shareholders have lost around $6 billion in write-downs, and we really need some broad and management accountability for that,” he said.

Senior lecturer in corporate governance at Macquarie University Michael Quilter saw a legal strategy in appointing Newman for the report.

“There could be some element of trying to get in first, to pre-empt any negative reaction from ASIC in relation to the company’s conduct,” he said.

“It’s probably also a little bit of insurance to their future.”

As of September 4, Newcrest de-listed from the Toronto Stock Exchange.

To keep up to date with Australian Mining, subscribe to our free email newsletters delivered straight to your inbox. Click here.