Newcrest ‘not at fault’ says report

Newcrest 'not at fault' says report

Independent report blames analysts for being too slow

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published September 5, 2013 1:23 pm AEST

Newcrest Mining (ASX:NCM) has cleared itself of any wrong doing after analysts downgraded the company two weeks before the company announced it was reducing output.

The corporate securities regulator, the Australian Securities and Investments Commission (ASIC) has yet to release the results of its own investigation into the company's disclosure. Claims have been raised that several analysts were 'selectively' briefed by the company ahead of an announcement of massive writedowns and a production downgrade.

In an effort to clear its name and regain the trust of the market, Newcrest hired former Australian Securities Exchange chairman Maurice Newman to conduct an independent review. The results were released today, with analysts being blamed for being too slow to pick up on previous announcements, and Newcrest cleared of doing anything wrong.

News of job cuts and office closures had apparently already leaked to the market in the lead up to the announcement, and five analysts downgraded their forecasts and price targets in the week leading up to Newcrest's announced downgrade, with all citing similar reasons.

Astoundingly, Mr Newman writes in his report that he was unable to interview any of the analysts involved as well as the majority of broker firms whose analysts attended Analyst Meetings. Without their views, it seems that Mr Newman may not have had the full picture, and perhaps it's no wonder that Newcrest was cleared in his 'independent' report.

Pleasingly, the report recommends several steps that Newcrest should take and most, if not all, corporates should consider. Newcrest has announced that the board supports all the recommendations in the report, including adopting a more reactive approach to analyst forecasts, releasing all external presentation materials to ASX as well as broadcasting investor relations events for the benefit of all shareholders.

Shareholders in the company could be forgiven for being unhappy, with Newcrest shares dropping more than 50%, compared to a gain in the S&P / ASX 200 Index (Index:^AXJO) (ASX:XJO) of more than 16% since September 2012. While much of the fall was due to the sliding gold price; billion-dollar writedowns, production downgrades and this scandal also pushed the shares lower.

Foolish takeaway

In this Fool's opinion, selective briefings should be banned unless they are recorded and made available to all investors. Until that happens, retail shareholders may feel that they are being excluded from potentially market sensitive information, whilst analysts and fund managers are given an unfair advantage.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.

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