Newcrest Mining Limited: A Leading Gold Mining & Exploring Company In Australia

Company Overview

Questions:

PART A:

Part A1

Provide an executive summary of your company’s background relating to business structure, operations, services and all other business activities that are conducted, etc.

Part A2

Use the annual report for the year ending 30 June 2014. Your group will need to review the major sections of this report in order to familiarize yourselves with the content of each of the financial statements and appropriate notes to the financial statements.

Review the balance sheet of the company and indicate the amount of the following:

a) Total current assets
b) Total non-current assets
c) Total current liabilities
d) Total non-current liabilities
e) Total stockholder’s equity

Compare the above figures with the previous year and compute the percentage increase or decrease and comment on the comparative financial condition of the company.

Part A3

Review the income statement and indicate the following:

a) Total (operating) revenues
b) Cost of Goods Sold (if relevant)
c) Total expenses (before income taxes)
d) Any non-operating (or extraordinary) gains and losses
e) Earnings per common share

Compare the above figures with the previous year and compute the percentage increase or decrease and comment on the comparative financial operation of the company.

Part A4

Review the statement of cash flows for the most recent year and indicate the following:

a) net cash inflow (outflow) from operating activities
b) net cash inflow (outflow) from financing activities
c) net cash inflow (outflow) from investing activities
d) net increase (decrease) in cash during the year

Analyse the Cash Flow Statements for the last 2 years and comment on the cash position of the company.

Part A5

Review the stockholders’ equity section in your chosen company’s most recent year-end balance sheet and compare that with the previous year-end balance sheet. Compare percentage increase or decrease.

List the stockholders’ equity account balances and number of outstanding shares from these two balance sheets and compute the increase or decrease for each
during this past year.

1.Describe the alternatives the organisers have in relation to recognizing revenues. Which would you recommend and why?

2. Would your answer differ if you included in the sale of the tickets that if the customers are not happy the tickets may be returned within one month?

3. Let us assume that the organisers contracted a selling agent that takes care of all selling and marketing responsibilities, gets 10% as commission. The policy states that no return no exchange. When should the organisers recognize revenue?

4. With regards to the authenticity of the signatures, do you think the accounting profession have the skills to provide the services to authenticate? Discuss and show examples.

5. Discuss the importance of Cost of Goods Sold(COGS) in this case. How is it applied?

6. Let us say that the signatories will get a fixed fee for the effort, when would the organisers recognize the expense?

7. Assume that the signatories will get a 5% commission on the sales of their signed tickets. When would the organisers recognize the cost?

The company which we have selected for presenting the report is related to the mining sector in Australia. The company name is NEWSCREST MINING LIMITED. The company is operating in various countries including Australia through joint ventures, subsidiaries and associates. The company operations are related to Mining of Gold and producing gold thereon. The corporation is an Australian corporation which is involved in the developing, exploring and producing the gold and the concentrate of gold and copper in Australia and other international countries also like Indonesia. The company is a leading Gold Mining and exploring corporation in Australia. The corporation is listed in Australian Stock Exchange. Now we will discuss the financial parameters of the company in detail for the two financial years ending on 30.06.2014 and 30.06.2013 and make a comparison of the two years. While doing so we are going to analyse the growth of the corporation financially on various financial parameter like current assets, current liabilities, shareholder’s equity etc.

Financial Position Analysis

The background of the company is that the company was founded by William Thompson (the Colonel) in the city of New York in the year 1921. It was formed as a holding company which wants to invest in mineral oil resources worldwide as well as the related companies in like operations. The corporation primary focus was Australia up to 1991. But since 1991 the company has been looking for opportunities in overseas operations also. The company headquarters are in Melbourne, Australia. The company is ranked in top 50 listed companies in Australian Stock Exchange and is also listed in the Port Moresby Stock Exchange.

The company’s operations consist of mining gold, exploration of the gold and development of the gold and the copper concentrate. The Australia’s largest operation in Gold mining operations, Cadia Valley Operations is a 100% subsidiary of the Newcrest Mining Limited. Cadia Valley Operations has 3 mines. All the three mines are large scale mines. These mines are using one of the following methods:

1. a) Block and panel caving method
2. b) Method in relation to open pit mining

As per the data available in the website of the company the company is engaged in the production of Gold Dore with the help of a Gravity Circuit and the concentrate of gold and copper from the floatation circuit. The operation of the company involves the refining of the Gold Dore from Cadia Valley Operations at the mint of Perth and the concentrates of Gold and Copper are then piped to a plant which is dewatered at Blarney and thereafter the same is sent to Port Kembla in New South Wales for the exportation in countries of Eastern Asia.

The company is also focussing on increasing its capacity to increase the reserves of Gold and Copper concentrates in its production. This will help the company to supply huge quantity of the product when required and there will be no shortage also.

The company area of operation other than the Cadia Valley Operations is numbered below:

1. a) Telfer, WA
2. b) Lihir, PNG
3. c) Bonikro, Cote d’lvoire
4. d) Hidden Valley, PNG
5. e) Gosowong, Indonesia

The company is also helping to develop the economy of the countries they operate in. They are largest contributor to the economy and source of employment in various areas in which they are operating.

The company is also having some advanced project like Wafi-Golpu, PNG and Namosi, Fiji.

The company uses all modern and safe technology in mining, exploration and other production processes. There are mainly two technologies – mining and processing technology. The main focus of the company is to develop new innovative process of technology such that the work becomes simpler and the production target is met in lesser than expected time horizon.  (Limited 2014)

Now we are going to analyse the financial position of the company in relation to the consolidated figures from the report of the company available on its website.

Figures in $ million

Financial Parameter	As on 30.06.2014	As on 30.06.2013	Absolute Difference	% Increase/ (decrease)	Remarks
Total Current Assets	1267	1389	(122)	(8.78%)	Negative
Total Non Current Assets	12320	15684	(3364)	(21.45%)	Negative
Total Current Liabilities	656	933	(277)	(29.69%)	Positive
Total Non Current Liabilities	5224	6138	(914)	(14.89%)	Positive
Current Ratio	1.93	1.49	.44	–	Positive
Total Shareholder’s Equity	7581	9863	(2282)	(23.14%)	Negative

 

• Total Current Assets and Total Current Liabilities: If we talk about the change in the total current assets of the company, then we can say that the effect is not at all positive since the total current assets have decreased by $122 million in absolute terms and a percentage decrease of 8.78 from the previous year. But we cannot conclude straight forward regarding the financial condition of the company by comparing the total current assets only. We need to check the current ratio of the company. A current ratio is calculated by dividing the current liabilities from the current assets. The total current assets are taken in the numerator and the total current liabilities are taken in the denominator. The current ratio shows the financial condition of the company, how strong the company is financially in short period of time which is less than one year horizon. The strength of the short term liquidity position of the company can be calculated from the current ratio. Here the total current ratio has been a positive impact. The reason being the total current assets have not fallen by much but the total current liabilities have fallen by much percentage in comparison with the total current assets. The fall in the total current assets is less thereby strengthening the short term liquidity of the company. This shows the company’s good position to meet its short term working capital requirements.
• Total Non Current Assets and Total Non Current liabilities: On the other hand if we examine the increase or decrease in the Total Non Current Assets and Liabilities we found that the total Non Current assets have fallen much in absolute as well as the percentage terms also. This means that the company has been able to receive the long debts due from a long time. Contrary the Total Non Current Liabilities of the company has not fallen by the same amount and percentage as compared to the Non Current assets. This means that the company’s long term liabilities are still there with less repayment from the last year. This difference shows that the financial position of the company in the long term is not so good when we talk about the short term position of the company.
• Changes in the Shareholder’s Equity: The shareholder’s equity has decreased very sharply from the last year. The sole reason being the loss in operation has widened in the last year of operation. The Reserves or the retained earnings amount has fallen by $2221 million which has led to fall in the shareholder’s equity. This fall leads to loss to the shareholders of the company. The loss will lead to fall in the share price of the company in the stock exchange, destroying the shareholder’s wealth.

Figures in $ million

Profit Loss Constituent	Year ended 30.06.2014	Year ended 30.06.2013	Absolute Difference	% Increase/ (decrease)	Remarks
Total Operating Revenues	4040	3775	265	7.02%	Positive
Cost of Goods Sold	3094	2941	153	5.20%	Positive
Total Expenses	3497	6924	3427	49.49%	Positive
Extraordinary Gain/(Loss)	–	–	–	–	–
Gross Profit Ratio(Sales/Cost of Goods Sold)	76.58%	77.91%			Positive
Earnings Per Common Share	$(289.80)	$(755.10)	$465.30	61.62%	Positive

Here we see that the sales of the company have increased. This is positive trigger for the company. The next point to focus on is the Cost of sales of the company. If we look at the figures and the percentage difference we will be feel like that the cost of goods sold has increased. But we cannot give a final verdict on just comparing the cost of goods sold of the operation. There might be several reasons due to which the cost of goods sold is high. The production may be high and the sales figures are to be checked to comment of the financial operation of the company. We need to calculate the Gross Profit Ratio of the company. The gross profit ratio is calculated and has shown improvement since last year. So we can say that the company has a better Gross Profit Ratio. Thus the company has progressed a bit operationally.

Production Operations

If we look at the other parts of the financial operation of the company in both the years the company’s loss has decreased since last year tremendously and hence the company is in a position to cover the reduce the amount of previous losses. Thus the company is able to create shareholder’s wealth in the current year.

Now coming next to the Earnings per Common Share of the Company, the company has posted Earnings per share of ($289.80) in comparison to ($755.10) showing a great increase in absolute as well as the percentage terms. So the financial operation of the company has shown a great turnaround since last year. (Madinson n.d.)

Figures in $ million

Cash Flows	As on 30.06.2014	As on 30.06.2013	Absolute Difference	% Increase/ (decrease)	Remarks
Net Cash Inflow (Outflow) from Operating Activities	1037	1147	(110)	(9.59%)	Negative
Net Cash Inflow (Outflow) from Investing Activities	(904)	(2564)	1660	64.74%	Positive
Net Cash Inflow (Outflow) from Financing Activities	(61)	1236	(1297)	104.94%	Positive
Net Increase (decrease) during the year	72	(181)	253	139.78	Positive

If we look at the cash inflow from operation of the company we can say that the company cash position has reduced from last year. So this part is slightly negative for the company. On the other hand the company has shown a tremendous increase in the Cash flow from investing activities. This is a big positive for the company in comparison to the last year. Thirdly the company is progressing financially also. It has not taken loans from other companies and hence the company is not increasing its long term liabilities. Thus the overall cash flow in the current year has been positive which shows that the cash position of the company is very good and improving very fast. (McClure n.d.)

Figures in $ million

Particulars	As on 30.06.2014	As on 30.06.2013	Absolute Difference	% Increase/ (decrease)
Shareholder’s Equity Balance	7707	10002	(2295)	(22.95%)
Number of Outstanding Shares	766165794	765607049	558745	.073%

Note: The difference of 558745 numbers of shares represents the company’s share based plan and the rights applied in course of this plan. This also relates to executive service agreements.

Conclusion:

Finally in conclusion we can say that the company’s performance has increased from last year financially as well as operationally. The company is having a turnaround in its operation from the last year and the company is a good investment opportunity. The facts and the figures demonstrate a huge growth in the company in the coming times leading to solution to the investors for growth and opportunity in the long run.

The growth of the equity wealth helps the investors to understand the growth of the company and also the interest of the stakeholders are not sacrificed.

An offer has been received from the organizers of Melbourne Tennis Open 2015. Premium tickets will be purchased by us from these organizers bearing the signatures of the greatest and popular tennis players like Rafael Nodal, Roger Federer, etc. There are only 300 tickets of these features.

• The Retail Sale Price of the Ticket is $300 each
• The price for the tennis club members is at a discount. The price being $280 each.
• Delivery Time 5 days.

Required Answers to Questions:

1. The organizers have to recognize the revenue of the tickets sale to us but they have two options of recognizing the revenue. One is two record the revenues at the time they transfer those tickets or to defer the recognition until the delivery is made. The recognition of the revenue is linked with the transfer of the rights and ownership of the tickets to the buyers. The important thing here is that the delivery shall be assumed as the final event of transfer of ownership and the rights to the customer. Hence the recognition of the revenue shall be made at the confirmation of the delivery to the buyer’s place.

2. If there is a clause in the tickets which mentions that the customers can return their tickets if they find themselves not satisfied with the event, then the previous experience of the company shall be taken into consideration. If according to the previous experience of the company there were 10% returns, then the 90% of the revenue shall be recognized immediately after delivery to the buyer and the remaining 10% shall be deferred for one month.

3. In this case the organizers are contracting to hire a selling agent who will purchase all the tickets immediately from the organizers and the policy states that there will be no return and no exchange of the tickets. Hence in this case there will be no delivery time involved. The revenue shall be recognized when the selling agents purchases the ticket from the organizers.

4. Authenticity of a signature can be assured with the help of the accountancy profession. Here it is important to know the importance of the digital signatures. A digital signature is the soul signature of the person signing it and it cannot be forged. It has a password and it is protected by means of it. Thus we can say that the authenticity of the actual signature of the popular sports personalities can be given with the help of the Digital Signature of these sport personalities which are regulated by authorised bodies.

5. The cost of goods sold is important here because ultimately every financial statements comprises of the cost of goods sold. We need to disclose the cost of sales separately in the financial statements every year.

A cost of goods sold in this case shall be calculated by applying the general principles. The costs which are directly related with the sales shall be included in the figure of the cost of goods sold. The direct sales costs are cost of printing tickets, fees given to the popular tennis players, the rent of the stadium or the event auditorium, etc.

6. Since the organizers are aware of the fees in advance, the same is known event. There is no uncertainty with the fees. Therefore the organizers shall recognize the revenue immediately after successful delivery of the tickets. (Sriyra n.d.)

7. In this case it is mentioned that the signatories will be getting a fee of 5% on the sale of tickets bearing their signatures. So the event is depending on the sale of the tickets containing the signatures of the popular players. Hence it can be concluded that first we need to compute the amount of tickets sold with signature and without signature. There will be separate recognition of amount of the two types of tickets but there will be no difference in the timing of the revenue recognition. The revenue shall be recognized immediately after the successful delivery of the tickets. (Street n.d.)

References

Sriyra. https://www.futurpreneur.ca/en/resources/operational-and-financial-planning/articles/cybf-article-financial-analysis-and-the-effective-operation-of-your-company/. https://www.futurpreneur.ca/en/resources/operational-and-financial-planning/articles/cybf-article-financial-analysis-and-the-effective-operation-of-your-company/.

Street. https://www.streetofwalls.com/articles/investment-banking/recruiting-interviewing/comparative-company-analysis/. https://www.streetofwalls.com/articles/investment-banking/recruiting-interviewing/comparative-company-analysis/.