Newcrest Mining Limited: Corporate Governance, Risk Management, And Financial Performance

Overview of Newcrest Mining Limited

Newcrest is identified to be “world’s largest gold mining companies” operating in four different countries. The headquarter of the company is situated in Melbourne and among the top 50 companies present in “Australia, Papua New Guinea (PNG), Indonesia, and Côte d’Ivoire”. The important emphasis of the company is identified with the key value drivers which has been seen with “maintaining low costs, growing reserves and production and using capital efficiently”. The mission of Newcrest is identified with delivering “superior returns from finding, developing and operating gold/copper mines”. The vision of the company has been further considered with “safe, responsible, efficient and profitable mining”. The main strategy off the company is identified with discovery of the new ore bodies and successful exploration of the track record in this regard (Newcrest Mining Limited 2018).

The important form of the discussions of the report has been considered with addressing the various implications of the “ASX Corporate Governance Principles for Newcrest Mining”. Some of the different types of the other scope of the discussion is considered with the “relevant audit risk and potential steps to reduce risk”. The latter part of the discussions has included the rationale for fair remuneration provided to the directors and “computation of the income statement and balance sheet ratios”.

The organization is recognised with the maximum standard of adhering to the CG principles which is inline with the vision. The effective nature of the CG standard is seen with following of “Corporate governance as published by the Australian Securities Exchange (ASX) Corporate Governance Council (3rd edition ASX Principles and Recommendations)” and regularly reviewing the compliance to the CG practices. The board of directors are seen to comprise of ten directors. The board has been further able to determine that “Non-Executive Directors including the Chairman are considered independent” as per the “Board’s Independence Policy”. The main motive of the board is set out with the board charter. It has been further identified that the charters of each board have been able to set out with the “roles and responsibilities for the committees” (Bryce, Ali and Mather 2015).

The stakeholder communication is seen to be performed in a “timely, transparent and balanced style”. The board has been further seen to adopt the various types of the polices which adhered to the different types of the disclosure requirements as stated by the ASX. The board of Newcrest is further seen to be supported with the “Disclosure Committee: Disclosure Committee Charter”. In addition to this, the employees are always encouraged for being “long-term holders of Newcrest’s”. It is further understood that the company takes the necessary actions on “acquisition or disposal of those shares or securities in any company in which the person may possess inside information”. The “Securities Dealing Policy” includes the blackout period which does not allow the employees to deal in the securities of the company (Chen et al. 2015).

Key Value Drivers, Mission, Vision, and Strategy

The executive remuneration of the policy of the company has been identified with contribution at different levels which has been directly related to the contribution of the management to the “short-term and long-term success of the Company”. A considerable proportion of the senior manager remuneration is placed at risk as it is dependent on the both company and personal performance which is usually formally assessed in every year. The board has been further seen to establish the various types of the specific personal and corporate performance seen with the objectives as per short and long term (Ruhnke and Schmidt 2014). 

The different nature of the risk assessment is considered with the factors affecting “financial assets, liabilities or future cash flows”. The main risk factors are further seen to be considered as per “Foreign currency risk, Liquidity risk, Interest rate risk, credit risk, Commodity and other price risks”. The different types of the commodity and other price related risks are considered with the copper production sold in the global market. The market price of copper and gold is considered to generate the cash flow for the Newcrest’s overall capacity. Newcrest is identified as an unhedged producer which is seen to provide the shareholders the risks associated to the “changes in the market price of gold and copper”. Moreover, the various types of the foreign currency risk are considered with the fluctuation in the exchange rate. The group revenue is primary see with the “US dollars whereas a material proportion of costs (including capital expenditure) are collectively in Australian dollars and PNG Kina”. Additionally, the Australian companies have been considered with the AUD functional currencies, whereas “non-Australian operating entities have USD functional currencies” (Ruwanpathirana et al. 2014). 

The risk factor are seen with “Group’s Statement of Financial Position can also be affected materially by movements in the AUD:USD exchange rate”. Furthermore, the audit committee of the company is recognised with the risk considered with liquidity and “capital management policies and objectives, which utilise debt as a key element of the Group’s capital structure”. The specific nature of the risk exposure factors is further seen with “sufficiency of available unutilised facilities and the repayment maturity profile of existing financial instruments”. The various nature of the credit risk is initiated from the “counterparty to the Group’s financial assets” which has been included with the “derivative instruments, trade, cash equivalents and other receivable’s” (Griffiths 2016).

ASX Corporate Governance Principles and Compliance

The depictions based on the income statement shows that despite of increasing sales the profit for the period has considerably decreased.

A more detailed analysis in the profitability ratio as suggested that there is a slight decrease in net profit margin, return on equity and return assets. This finding has led to a significant profitability risk in the coming years.

 The overall depictions of the efficiency ratio has signified that Newcrest is in a better position in the recent year which is evident with an increasing efficiency ratio of 2.22 in 2016 to 2.32 in 2017.

Some of the positive aspects of financial ratio has been depicted with an increasing nature of liquid assets available for operational activities. The increasing short-term liquidity to issue is evident with “current ratio of 1.20 in 2016 to 1.88 in 2017 and quick ratio of 0.87 in 2017”.

The reducing debt equity ratio has suggested a lower risk in paying off the creditors in the present financial year. This is suggested with “Debt-to-total Assets Ratio  of 0.36 in 2016 to 0.35 in 2017 and debt equity ratio of 0.57 in 2016 to 0.54 in 2017”.

It has been determined that the “risk management” and the “internal controls” are of prime importance to the board which provides an oversight of the matters of key audit obligation. The company has been further able to determine the framework which is regularly reviewed by the board. The different types of the internal control are further seen to reviewed on regular basis. The different types of the internal control risks are averted by maintaining an “integrated, robust planning and budgeting process” and delivering a detailed two-year budget. This budget is considered to be “subject to the approval of the board against the performance targets” reported as per the monthly and supplemented quarterly forecast updates. The authorisation of the investments is identified as the main process for capital approval. The decisions pertaining to capital are subject to technical and commercial review (Ya-Mei, G.U.A.N. and Xiang, S.U.N 2017). 

The company has been also identified to for employing delegated authorities who are seen to cascade as per “authority levels   for expenditure and commitments from the Board, to the MD & CEO, and then from the MD & CEO to the rest of the Company”. Moreover, the procedure of due diligence is employed in place for the various types of acquisitions and divestments. Furthermore, the documentation of the capital strategy is set out with several factors such as “capital structure, liquidity and cash flow at risk objectives of the Company”. The Newcrest’s treasury department has been able to attend various policies and systems for the management of “debt, commodities currency exposures, investment of surplus cash, and interest rate risk management” (Cohen, Krishnamoorthy and Wright 2017).

Risk Factors Affecting Financial Assets and Liabilities

The company’s present external auditor EY reviews the audit process on an annual basis. The different areas of acknowledgment for the audit process involves significant areas of “knowledge, quality of team, coverage ability, industry knowledge, cost and audit methodology,” which has a significant role for an efficient service delivery. In addition to this, “Audit and Risk Committee” ensures “lead external audit partner and quality review partner” revise their role in “every five years”. It has been further identified that audit and risk committee meet with the external auditor for doing a review of the adequacy in the “existing external audit arrangements, with particular emphasis on the effectiveness, performance and independence of the auditor” (YANG 2017). 

Conclusion

The different types of the depictions on the implementation of ASX CGC principles have stated that Newcrest abides by the regulation as per “Corporate governance as published by the Australian Securities Exchange (ASX) Corporate Governance Council (3rd edition ASX Principles and Recommendations)”. The findings on the risk assessment has further revealed the main risk factors as “Foreign currency risk, Liquidity risk, Interest rate risk, credit risk, Commodity and other price risks”. The risk factor are seen with “Group’s Statement of Financial Position can also be affected materially by movements in the AUD:USD exchange rate”. The income statement and balance sheet ratio has revealed decreased profit but an improved liquid asset for the operational activities. The potential steps to reduce risk is determined with maintaining appropriate “risk management” and the “internal controls” are of prime importance to the board which provides an oversight of the matters of key audit obligation. 

References

Bryce, M., Ali, M. J. and Mather, P. R. (2015) ‘Accounting quality in the pre-/post-IFRS adoption periods and the impact on audit committee effectiveness – Evidence from Australia’, Pacific Basin Finance Journal, 35, pp. 163–181. doi: 10.1016/j.pacfin.2014.12.002.

Chen, Y., Gul, F. A., Veeraraghavan, M. and Zolotoy, L. (2015) ‘Executive equity risk-taking incentives and audit pricing’, Accounting Review, pp. 2205–2234. doi: 10.2308/accr-51046.

Cohen, J., Krishnamoorthy, G. and Wright, A., 2017. Enterprise risk management and the financial reporting process: The experiences of audit committee members, CFOs, and external auditors. Contemporary Accounting Research, 34(2), pp.1178-1209.

Griffiths, P., 2016. Risk-based auditing. Routledge.

Newcrest Mining Limited (2018). About us | Newcrest Mining Limited . [online] Newcrest.com.au. Available at: https://www.newcrest.com.au/about-us [Accessed 17 Apr. 2018].

Ruhnke, K. and Schmidt, M. (2014) ‘Misstatements in financial statements: The relationship between inherent and control risk factors and audit adjustments’, Auditing, 33(4), pp. 247–270. doi: 10.2308/ajpt-50784.

Ruwanpathirana, T., Reid, C. M., Owen, A. J., Fong, D. P. S., Gowda, U. and Renzaho, A. M. N. (2014) ‘Assessment of vitamin D and its association with cardiovascular disease risk factors in an adult migrant population: An audit of patient records at a Community Health Centre in Kensington, Melbourne, Australia’, BMC Cardiovascular Disorders, 14(1). doi: 10.1186/1471-2261-14-157.

Ya-Mei, G.U.A.N. and Xiang, S.U.N., 2017. Research on the Identification, Evaluation and Response of Low Carbon Audit Risk of Resource-based Enterprises. DEStech Transactions on Economics, Business and Management, (iceme).

YANG, L.L., 2017. Risk-based Audit Model Construction Based on Big Data Age. DEStech Transactions on Engineering and Technology Research, (apop).

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