Management Discussion and Analysis of the Financial Statements
This discussion and analysis is provided to assist readers in understanding the Concise Financial Report. The Concise Financial Report has been derived from the full 2004 Financial Report of Newcrest Mining Limited.
The Newcrest Mining Limited Consolidated Entity consists of Newcrest Mining Limited and its controlled entities. The principal activities of the Newcrest Mining Limited Consolidated Entity during the financial year comprised exploration, development, mining and the sale of gold and gold/copper concentrate.
Summary of Year’s Results
The 2003/04 year was a significant year for the Consolidated Entity’s financial management with the need to fund the Telfer project. The funding plan placed strong reliance on the Cadia Valley mines to generate the cash flows expected at the beginning of the year. It was also the year that Ridgeway established itself as a quality mine. On an undiscounted basis, cash flow from Ridgeway has fully repaid the capital invested in less than two years.
The financial highlights of the 2003/04 year are summarised in the following table:
| 2004 | 2003 | |
|---|---|---|
| Net profit after tax before significant items | $119.3 million | $66.3 million |
| Net profit after tax | $122.9 million | $92.2 million |
| Basic earnings per share | 37.5 cents | 29.6 cents |
| Return on members equity (EBIT before significant items) | 18.1 percent | 10.6 percent |
| Return on members equity (Net profit after tax) | 12.4 percent | 10.5 percent |
| Gearing (net debt/net debt + equity) | 49 percent | 30 percent |
Profit after tax but before significant items rose substantially in 2003/04. This measure is considered to be the better indication of the profitability of the underlying businesses. The increase in profit resulted principally from higher production and lower cash costs assisted by strong copper by-product revenue. Earnings per share and return on equity both rose accordingly.
The commissioning of the Telfer project in the first half of the current year will result in significant increases in these measures for the whole of 2004/05.
Statement of Financial Performance
Net profit after tax attributable to shareholders for the year was $122.9 million (2003: $92.2 million). The profit after tax but before significant items also increased significantly to $119.3 million (2003: $66.3 million).
Major factors impacting the result for the current year are:
Revenue
- Total gold revenue increased by $26.0 million due to an increase in sales ounces and the achieved gold price received was $579 per ounce (2003: $567 per ounce). Gold hedging gains contributed $25.3 million to the Group result, reflecting the strength of the Australian dollar during the year relative to the Newcrest foreign exchange hedge book.
- Total sales ounces were 754,745 (2003: 724,584).
This increase of 30,161 ounces was mainly as a result of:– increase from Ridgeway, 56,147 ounces; – decreased throughput at Cadia Hill, 63,095 ounces; – increase in Indonesia of 37,221 ounces. Commencement of operations at Toguraci contributed 75,948 ounces compared to the prior year completion at the Gosowong pit which produced 38,727 ounces. - By-product revenue significantly increased by $77.5 million to $270.3 million as a result of copper tonnes sold increasing to 84,231 tonnes (2003: 68,604 tonnes). Copper hedging contributed $3.8 million resulting in an achieved copper price of $1.44 per pound (2003: $1.28 per pound).
Costs
- Gross mine costs (excluding copper by-product revenue) increased due to higher production volume, however per unit cash costs were lower compared to the prior year.
- Borrowing costs expensed of $12.1 million are net of the borrowing costs capitalised to the Telfer project of $36.6 million.
- Other expenses mainly comprise Gosowong and Boddington care and maintenance.
Significant Items
- Surplus foreign currency contracts in excess of anticipated net US dollar receipts were provided for in the prior year. During the year, the appreciation of the Australian dollar resulted in a write-back to profit on this provision of $10.3 million. All surplus contracts have now lapsed and this provision is now finalised.
- The Consolidated Entity has adopted natural hedge accounting for its US dollar loan. A foreign exchange gain of $4.7 million was made which matched the loan repayment profile.
- Ongoing treatment of prior year hedging restructures involving gold, copper and gold lease rate contracts resulted in an expense of $9.8 million. $0.5 million has been released to operating revenue in the period resulting in a net increase to the provision of $9.3 million.
Other
- The net profit after tax translates to a basic and diluted earnings per share of 37.5 cents and 37.0 cents per share respectively and a return on equity of 12.4 percent.
- On 26 August 2004 the Directors declared a fully franked dividend of 5 cents per share.
Other factors which will impact future results:
- Subsequent to 30 June 2004 Newcrest Mining Limited announced that it had completed a comprehensive simplification of its legacy gold and foreign currency hedging positions. The hedge book, following the restructure, consists simply of a series of Australian and US dollar gold forward contracts. The resulting gains and losses on these contracts have been deferred and will be recognised over the years of 2005 to 2011 in line with the underlying production. Refer to the attached subsequent events Note 11 for more detail.
Statement of Financial Position
The Group is in a sound financial position having completed the funding required for Telfer. At 30 June 2004 total assets have increased to $2.6 billion, an increase of $727 million. The majority of this increase represents the capital expenditure associated with the Telfer project.
Total liabilities at 30 June 2004 were $1.6 billion, an increase of $612 million. The Consolidated Entity completed its drawdown under Telfer funding facilities during the year resulting in proceeds from borrowings of $554.9 million from the syndicated loan facility, $85.0 million unsecured bank loan and $73.1 million increase in finance lease liabilities. Newcrest Mining Limited concluded the year with gearing (measured as net debt to net debt-plus-equity) at 49 percent.
Contributed equity increased by $7.2 million during the year from the issue of shares on conversion of employee options and the dividend reinvestment plan.
Statement of Cash Flows
Group cash balances for the year have increased by $55.9 million for the year to $157.0 million, reflecting higher cash flows from operating activities and debt raisings to meet cash flows from investing activities.
- Cash flows from operating activities were $67.8 million higher than 2003 due mainly to increase in sales receipts and by-product revenue.
- Net cash used in investing activities amounted to $753.4 million. Major areas of expenditure include:
– Telfer project of $666.7 million. (Includes Telfer Deeps and Pre-Strip Mine costs) – Exploration and evaluation expenditure of $45.4 million – Cadia Valley Operations expenditure of $17.7 million – Cracow expenditure of $17.0 million
Capital expenditure programs were largely financed by debt raisings. Major movements in the cash flows from financing activities include:
- Drawdown from financing facilities of:
– Telfer syndicated loan note facility $554.9 million
– Unsecured bank loan $85.0 million - Repayment of borrowings consisted of:
– $49.1 million gold loan
– $15.4 million finance lease principal
– $22.8 million from US dollar loan.