HA3032 Auditing Report: Newcrest Mining Limited Performance Review

This report presents an executive summary and detailed analysis of Newcrest Mining Limited (NCM), a prominent gold mining company with a significant presence in Australia. The report delves into NCM's operations, investment and financing activities, and financial reporting practices, highlighting its strong cash flows, strategic focus on underground mining technologies, and adherence to Australian Accounting standards and IFRS. The industry analysis includes the size and growth of the mining sector, supply chain dynamics, major players like BHP Billiton and Rio Tinto, and critical success factors. The report employs PEST, SWOT, and Porter's Five Forces analyses to assess the external and competitive environments. Furthermore, it addresses legal and regulatory requirements, industry development, business expansion, and the integration of IT. The report concludes with an overview of communication, corporate governance, organizational structure, and human resource policies within NCM, providing a comprehensive understanding of the company's performance and strategic positioning within the mining industry.

HA3032 Auditing
Trimester 2/2017
1

EXECUTIVE SUMMARY
The mining industry is site-specific indicating extraction of valuable materials,
minerals or metals from the earth. Newcrest Mining Limited is worlds most known gold
mining companies with a key focus in the geographical areas of Australia. The financial
data’s of Newcrest Mining Limited reveals that it has strong cash flows realising higher gold
prices, which offsets its copper prices and increasing costs of inputs. This industry is highly
fragmented and NCM is competing fiercely to drive a significant amount of countries
economy. Mining industry of Australia is intensely competitive and the global giants of the
market are BHP Billiton and Rio Tinto. The company is in stiff competition with these two
rivals. For the better understanding of industry tools have been used PEST, SWOT and
Porter’s five forces. Lastly a clear understanding of NCM limited accounting and expansion
needs are recognized. Further identifying their organization structure, workforce policies and
corporate governance adherence to have a comprehensive outlook.

EXECUTIVE SUMMARY......................................................................................................2
LIST OF FIGURES.................................................................................................................5
Introduction..............................................................................................................................6
Part 1.........................................................................................................................................6
Newcrest Mining Limited operations.....................................................................................6
Investment and Financing activities.......................................................................................6
Financial reporting practices..................................................................................................7
Part 2.........................................................................................................................................7
Industry size and growth........................................................................................................7
Industry supply chain...........................................................................................................10
Major Players and its Market share of industry players.......................................................10
Critical success factors.........................................................................................................11
Major Key Threats...............................................................................................................12
Part 3.......................................................................................................................................12
Legal and regulatory requirement........................................................................................12
Part 4.......................................................................................................................................13
PEST analysis.......................................................................................................................13
SWOT analysis.....................................................................................................................13
Porter’s five forces...............................................................................................................14
Other Factors........................................................................................................................15
Part 5.......................................................................................................................................15
Industry Development and new product and services..........................................................15
Business Expansion..............................................................................................................16
New accounting and regulatory requirements......................................................................16

Current and prospective financial requirements..................................................................16
Employing IT.......................................................................................................................16
Effects of implementing strategy.........................................................................................16
Part 6.......................................................................................................................................17
Part 7.......................................................................................................................................17
Communication and commitment towards greater competence..........................................17
Participation by those charged with governance..................................................................18
Management’s philosophy and operational style.................................................................18
Organization structure and authority and responsibilities....................................................18
Human resource...................................................................................................................18
Conclusion...............................................................................................................................19
Reference.................................................................................................................................20

LIST OF FIGURES
Figure 1: Global mining share....................................................................................................6
Figure 2: Business investment by different industries...............................................................7
Figure 3: Volume and value of mining commodities.................................................................7
Figure 4: Market share in %.......................................................................................................9
Figure 5: Market capatalisation..................................................................................................9

Introduction
Mining is the extraction of valuable materials, minerals or metals from the earth. The
mining industry is primarily an important industry and contributor to the Australian economy.
The mining industry is currently facing stiff challenges; the prominent amongst them are
associated with employment, energy and environment (Trudinger, Walter and Ralph, 2013).
The key aspect of so much hassle about this industry is the growth of global economies and
technological advancement. One of the Australia’s most renowned mining companies is
NCM (Newcrest Mining Limited). The current report has been drafted to assess the
performance of company and areas where it can improvise by considering the potential risks
of the industry.
Part 1
Newcrest Mining Limited operations
NCM is the worlds most known gold mining companies. It is engaged in the activities
of exploration, mine operation, mine development and sale of gold’s as well as copper/gold
concentrate. It possesses a wide portfolio of mines and pipelines of Greenfield and
brownfield exploration projects. It has its mines located in Australia.
Investment and Financing activities
The Newcrest has a keen interest in five production provinces across four countries
with a key focus on the geographical areas of Australia. The company is well established to
make strong revenues by delivering high quality of gold assets on a long-term basis. The
company places significant focus on strategic research and development regarding the
underground mining technologies for bulk production. This investment in advanced technical
instruments has helped the company in learning methods for caving mining.
The financial data’s of Newcrest Mining Limited reveals that it has strong cash flows
realising higher gold prices, which offsets its copper prices and increasing costs of inputs.
There has also been a significant improvement in operating cost profile (Hajkowicz, Heyenga
and Moffat, 2011). The companies statutory profits of the FY16 is US$332 million by driving
a production of 2.439 million ounces of gold. The Net debts have been substantially reduced
by 27% over the year, which amounts to approx. US$2.1 billion. The gold production has
also been at a mounting state with about 1% rise amounting to 2.4 ounces for the year. The
overall financial performance of the company has been solid with all positive cash flows.

This has led to enhancement in companies overall financial metrics with greater profitability
and better market conditions.
Newcrest Mining Limited is nonetheless an un-hedged gold producer having a sound balance
sheet broadcasting its financial strengths connected up with strong technical capabilities and
placing itself well positioned to compete effectively in the long run.
Financial reporting practices
The company has been reporting its financial practices in authentic ways using
Australian Accounting framework. This framework ensures that company provides fair and
just information regarding its business accounts. Indeed the accounts are drafted in tune with
the IFRS (International financial reporting standards), and thereafter the interpretations are as
per the IAS (International Accounting Standard Board). The method of preparing financial
statements is based on the historical costing method (Nag, Han and Yao, 2014). The method
helps reveal an overall picture of the previous transactions and highlight the areas where cash
and resources requirements are to be made for future wants.
Part 2
Industry size and growth
The mining industry is site-specific, and Australia has a matured mining and
resourceful industry built on nearly 200 years of experience. Newcrest Mining Limited is a
gold mining company, which involves mining as well as processing of gold from
underground and selling of the same in the world. It serves the industry with two most
prominent ores, i.e., gold and coal. The demand of this ore in the industry is higher than any
other production material. The global market has the epitome of value for this type of mining
extraction.

Figure 1: Global mining share
(Source: Hekmatyar, Salehi and Bayat, 2010)
This industry is highly fragmented. Australia’s mining companies are competing
fiercely in this industry because of the value of these metals and minerals they have been seen
to drive a significant amount of countries economy. The mining sector has been fluctuating
and not stagnant as the investment in mining saw a fall of 29.9% in 2016 compared to 2015.
The mining is moving away from the phase of investment and delivering increase output it is
likely the possible reason for its pattern.

Figure 2: Business investment by different industries
(Source; Economic conditions, n.d.)
Nonetheless, the Mining volumes of the country in total are strong, as the sector has
been transitioned into the production phase. As the production phase requires few employees
than the overall investment phase. Mining output represents 6.9% of total Australia GDP
(Ivanova, 2014). Mining has been ranked as the highest contributing industry to country’s
GDP.
Figure 3: Volume and value of mining commodities
(Source; Economic conditions, n.d.)

Industry supply chain
Optimization of the end-to-end supply chain is extremely important for integrating
and automating the operations, marketing function and logistics. As any failure could lead to
heightening risks, which could impede productivity, erode substantial profits and lead to
compromising product quality. Companies striving to remain competitive must ensure that it
takes key steps to optimize its supply chain from just a ‘pit’ to the point of consumption,
import and export (Reeson, Measham and Hosking, 2012). The mining supply chain
comprises of a complicated series of interrelated activities covering operations, transportation
as well as the marketing functions. Planning, execution and budgeting of activities throughout
these functions are important to ensure maximum profits and efficiency. It is challenging
aspect for companies to make sound decision in this matter of concern virtually.
Major Players and its Market share of industry players
The metals and mining sector is among the largest industry sectors in Australia.
Mining industry of Australia is intensely competitive between some key players who are
competing to survive every bit of land reservoirs. There are more than 2000 companies listed
on ASX, out of which 700 are companies associated with and metal and mining sector. Many
of the world’s prominent resource companies along with numeral mid-tier producers as well
as exploration companies exist within this industry (O’Connor, Vera-Muñoz and Chan,
2011). There are multiple companies competing for their share of the portion within the
industry, and the global giants of the market are BHP Billiton and Rio Tinto. BHP Billiton
and Rio Tinto are the key market leader in this field of extraction and production of natural
resources. The division performance is influential on the basis of its pricing, global presence
and value in terms of revenue. They represent the potential future of industry leader and have
been highly capital-intensive companies. The resources and its extraction are renowned major
market capitalisation.

Figure 4: Market share in %
(Source: Bellamy and Pravica, 2011)
Figure 5: Market capitalisation
(Source: Bellamy and Pravica, 2011)
Critical success factors
The mining sector is driven by substantial merits and to procure these merits it is
important that the following success factors are considered by the organization:
1. As mining product is generally considered as a commodity, companies must strive to
seek a cost position advantage.
2. Diversifying company on the basis of output, customer, market (export/local) and
mining location (Freebairn and Quiggin, 2010).
3. Accessibility to skilled work-force and labour productivity can help in the worthy
extraction of resources.
4. Technological improvement can help in increasing the efficiency of operational
activities.

5. Companies must uncover their probable and proven reserves and adopt replacement
strategy to enhance business performance as well as credit quality.
Major Key Threats
The mining industry is affected by following threats:
1. The production of commodity goods is affected by vulnerable gaps which are used by
cybercriminals to take advantage and use the IP and other proprietary information.
2. Dependency on other probable materials
3. The capital requirement is high, and its accessibility is limited (Fleming and
Measham, 2015).
4. Access to energy resource areas is typically another complicated task as a threat to
resource nationalism can reduce the land areas with fruitful resources.
Part 3
Legal and regulatory requirement
The ground-breaking element of Australian mining law is that all the minerals are
controlled and vested in the hands of crown and commonwealth. The state and northern
territory have its own regimes that govern the extraction and exploration of mineral in their
respective boundaries. The primary legislative regimes, which govern mining in Australia,
are:
1. Planning and Development Act 2007
2. Mineral Titles Act 2010
3. Offshore Minerals Act 2000 and Mining Act 1971.
Further, commonwealth holds constitutional powers which overrides state
powers. These are a relation to exports, national defence/security, taxation, competition,
employment, foreign affairs and environmental concerns (Kemp et al., 2010). It is important
that Newcrest mining limited hold annual exploration and extraction license to conduct
commercial mining activities. Further, also safeguarding environmental concerns as any
wrong conduct could lead to heavy penalties.