Strategic Business Report: Newcrest Mining Limited

1 Strategic Business Report: Newcrest Mining Limited Executive Summary Newcrest Mining Limited is a mining company based in Australia but with operations that span across the globe. The company deals in the production of gold, copper, as well as silver. Newcrest has a strong market existence that is mainly enhanced by its scientific approach that seeks to optimize shareholder value. The company strategy identifies the three categories of shareholders as the employees, suppliers, and the community living within the locality of its operations. Newcrest’s core competencies are its ability to produce at comparatively low costs through the application of its bulk underground mining technology.

Explorations are further ongoing to establish potential mining grounds that can further sustain the company’s production in the long run.

Buy this excellently written paper or order a fresh one from acemyhomework.com

2 However, the company also faces challenges in its operation from the different countries where it operates. The varying economic strength and value has made it difficult for the company to undertake its business owing to the valuation in the dollar value. Finding the right expertise to employ in the industry is difficult because most workers do not have the right skill. There is also high employee turnover in the industry which eventually makes labor costs to be high. The industry has limited threats of market entrance as the economy of scale involved is too high. Suppliers’ bargaining power is too powerful as they can involve themselves in retail business as well.

3 Strategic Business Report: Newcrest Mining Limited Introduction Companies always engage in designing their business strategy as a way of planning for their future performance in terms of attracting the best employees, winning customers, leadership in product and service innovation, profit optimization, among many other goals.

These strategies act as the roadmap that directs the firms towards attaining their desired objectives. This paper seeks to discuss in detail the aspect of business strategy with reference to Newcrest Mining Limited, an Australian based company that deals in the mining and production of gold. The paper also analyzes some of the competitive advantages that Newcrest enjoys over its competitors, as well as asses existing challenges that hinder its operations in general (Business Policy & Strategy Conference Paper Abstracts 2010, p. 1).

Business and Nature of the Company Newcrest Mining Limited has a company strategy in place which mainly seeks to deliver competitive shareholder returns. The company has categorically identified in its vision statement that it targets to be the best company of choice for its main stakeholders that are identified as the employees, the contractors, as well as the local communities. The vision is mainly guided by the objective of ensuring safe environment for the employees, the provision of social responsibility services for the communities, and general sustainability for the contractors.

In particular, Newcrest’s nature of business involves mining of gold in mainly four countries of Australia, Indonesia, Papua New Guinea, and the Ivory Coast. Additional exploration exercises are also carried out with the latest sites under close scrutiny including the Western Australian region of O’Callaghans and in Fiji. The survival of Newcrest depends heavily on continued discovery of new sites with orebodies deposits so as to enable the company optimize on its shareholder returns in the long run. The company goes about its

4 business by seeking to control areas with large prospective mineral deposits for purposes of securing prolonged mining operations while at the same time maximizing the potential for more discoveries.

Evaluation of Company Situation: SWOT Analysis Strengths Newcrest enjoys particularly from the fact that its portfolio is predominantly of a lower cost, but with operating mines that have longer life. In the four countries where the company conducts its mining operations, it employs very efficient bulk mining techniques that are of a relatively low cost. Equally, the company also utilizes selective underground mining techniques that maximize on high-grade epithermal deposits. Overly, this has made Newcrest’s operations to be affordable in the market, as compared to the costs charged by its competitors. In the financial year that ended in June 2011, the company managed to produce gold weighing 2.7 million ounces for only A$493 per ounce.

Newcrest’s philosophy which gives maximum attention to scientific exploration and a professional way of developing mines have also propelled the company into greater achievement heights. This philosophy is borrowed from Newmont Australia Limited, a company which was existent in the mining industry since 1966, and whose merger with BHP Gold Limited later in 1990 resulted in the formation Newcrest. Thus, the company boasts of elaborate experience in the mining industry which has boosted its competitive advantage (Aghdaie & Zardeini 2012, p. 243).

Weaknesses Newcrest management has to maintain efforts of discovering new orebodies so as to be able to sustain its operations and productivity. The management seeks to control large districts which have higher prospects of minerals for purposes of securing mining operations for longer periods of time. This, however, affects overall management efficiency as the

5 company is forced to divide its focus between maintaining internal administrative functions, and focusing on management and control of districts with mineral deposits.

Opportunities Newcrest has established three major prospects that contain significant metal endowments, including the Wafi-Golpu in PNG, O’Callaghans located in Western Australia, and Namosi located in Fiji. These sites will increase the number of years that the company can remain assured of prolonged production durations. The company is also presently undertaking two major projects that seek to expand its brownfield. Once they are through, the project in Cadia East will be the biggest underground mine in the whole of Australia, enabling it sustain production for 30 years. The expansion of the Lihir plant, set to be completed by close of the year 2013 will increase the production of gold for the rest of Lihir’s operation by over 1 million ounces a year.

Threats Mineral ores deposits do not exist permanently at their sources. These minerals get depleted after a period of time, following continued mining activities. This makes it complex for Newcrest which has to continuously explore different geographical locations with the anticipation of finding new locations with deposits. The exploration also takes place in different countries where trade policies, community response, infrastructure availability, and availability of labor vary from country to country (Sankaramuthukumar & Alamelu 2012, p.

27).

Newcrest’s Unique Competencies Newcrest largely relies on its unique competency of efficient technology which is of low cost. This technology is effective for bulk mining methods and is particularly applied for large orebodies, as well as for selective underground mining techniques. This makes the companies overall operation costs to be less expensive as compared to that of its main rival

6 companies. Newcrest also boasts of elaborate experience in the mining industry that spans for several decades. In particular, Newcrest has deep experience in the development and commissioning of operations in both large and small scale. This experience has seen its Research and Development department pioneer the world’s leading technology of underground bulk mining. As such, the investment has seen Newcrest advance caving as a technique in mining with its application being employed at the Ridgeway and Telfer mining fields. A further application of this new technology is set to be extended to Cadia East mining field, as well as the Wafi-Golpu mining field (Maritz, Poggenpoel & Myburgh 2009, p. 78).

Evaluation of the Company’s Present and Future Strategies Newcrest has particularly maintained a strategy that aims to optimize and deliver competitive returns to the shareholders. This has been achieved through the maximization of performance at every phase of the value chain in the mining process for gold in selected geographic areas of Pacific Rim, and Australia. The value chain, in particular, spans exploration as well as the development and operation of mines, both for gold and copper, at very low costs.

The company also pursues the building of gold opportunity portfolios for purposes of converting them into operating mines in the long run. These opportunities to develop the business involve the exploration of both brown and greenfields, together with the focusing on early acquisitions and entry mergers in all known gold regions.

In the mining field, the company also involves itself in the harnessing of technical expertise that spans across quite an elaborate range of pioneer edge mining techniques and formats. In other words, Newcrest has constantly sought to devise mining technologies and methods that are both efficient, as well as being cost effective.

Corporate responsibility also takes centre stage as the appropriate link that ensures Newcrest’s sustainability in attaining economic, environmental, as well as social objectives.

7 The company maintains a safe working environment for its employees by ensuring its mines are operated and developed according to acceptable environmental standards. Equally, the operations strongly offer a sense of commitment to the plight and welfare of the local communities which reside around the company’s operations.

Fostering lasting relationships with the surrounding communities is particularly significant to the company’s Vision of remaining to be the “Miner of Choice” in the market.

As such, Newcrest upholds basic human rights through recognition and respect of the surrounding communities’ culture, traditions, heritage, and values. The company understands how important cordial relations with employees could benefit it and as such pursues the building of mutual trust, as well as maintenance of respect for every individual’s dignity and worth.

The company also addresses the issue of inappropriate and illegal behaviors, including fraud, corruption, bribery, bullying and discrimination at the work place through its Code of Conduct, as well as Corporate Policies, and Corporate Governance framework.

Challenges currently being faced by the company The resources industry, in which Newcrest is a key player, is continuously facing high inflation costs due to rising energy costs, and the costs of maintaining the labor force.

Contractor charges have also risen, as is with supplier charges in the entire industry while at the same time there is marked decline or fall in overall labor productivity.

Given that Newcrest operates in different societies and countries across the globe, some of the local currencies where the company has set up base are experiencing sustained strength compared to the US dollar, the basic currency in which the company sells its products. The ramifications of this scenario are negative to the company’s ability to sustain its projects and operations. In particular, resultant operation costs emanating from energy and labor charges are continuously becoming challenging.

8 The mining industry is also experiencing shortage of people with the appropriate skill to operate in it. There is also a high turnover trend in the industry where the few workers with the appropriate expertise needed to provide the planning are affected.

Lihir and Cadia Valley mining projects which are capital-extensive, and which are being pursued concurrently by Newcrest are particularly creating greater complexity, and causing more variation risks in production. It is worth pointing out that the pre-commercial production ore that was initially sourced from Cadia East failed to meet the expectations that was anticipated prior to the beginning of the whole exercise.

Production disruptions have also been experienced in Lihir mainly due to long term underinvestment that the fixed has suffered. The company, therefore, needs additional spending and investment in order to see to it that the disruptions are rectified and the plant restored to its full production capacity.

Competitor Rivalry Analysis: Porter’s Five Forces Threat of new entrants There are large economies of scale involved in this industry which effectively limits the threat of entry into the industry or market by new players. The capital needed to begin operations is also quite exorbitant, making threats of market entry to remain very limited.

Switching costs incurred by customers as a result of changing suppliers are also expensive, a fact that further discourages new players from venturing into the business and compete with the already established players.

Threat of substitutes Substitution threats are limited as the relative cost incurred by buyers as a result of opting for alternative products is not worth it. In other words, switching costs to substitutes could prove to be expensive for the buyers in the long run. Equally, the performance of

9 substitutes does not measure up to the performance of the mainstream industry players and their products (Narayanan & Fahey 2005, p. 207).

Suppliers’ Bargaining Power Suppliers enjoy high bargaining power owing to their concentration in the entire mining industry. There is also the existence of highly valued products which remain undifferentiated. For the buyers, however, there are limited possibilities for them integrating backwards or turning themselves into their own suppliers (Renko, Sustic & Butigan 2011, p.

376).

Buyers’ bargaining power The buyer’s bargaining power in the industry is low as there are few sellers as compared to the number of buyers existing. The products are not standardized and the buyers have very limited option of integrating backwards or turning themselves into their own suppliers. Suppliers, on the other hand, have the ability to integrate forward such that they turn themselves manufacturers and producers of the minerals. For the buyers, the industry remains to be the most important supplying group for all the buyers.

Intensity of rivalry There is less intense rivalry in the industry due to the concentration in number of the competitor firms. Newcrest has performed extremely well to establish itself as a clear leader in the entire industry. The basic fixed costs of operation in the industry are high, thus encouraging the competing firms to fill capacity which is unused through cutting down of prices. The exit barriers are also too high for firms as the costs to be incurred in case a player opted out would be extensive in term of closing down mining fields (Grundy 2006, p. 213).

How the Company foresees Strategic Changes: Strategic Audit Resource audit

10 Newcrest’s major resources include the minefields already secured in Indonesia, Fiji, Papua New Guinea, Ivory Coast, and in Australia. The company will continue working in these countries for a considerable number of years as it seeks to optimize on its mining activities within these mines. Additionally, Newcrest is continuing with its exploration exercise at Western Australian region of O’Callaghans and in Fiji. These resources are meant to sustain the company’s mineral reserve for a long period of time thus assuring it of continued operations (Connor 2011, p. 287).

Value chain analysis Newcrest uses a lot of resources in conducting research that is aimed at improving efficiency in its overall performance and thus cutting down on operational costs. Through this initiative, the company has been able to initiate the underground bulk mining technology using caving techniques. Other support activities by Newcrest have also seen it develop skill among its workforce to enable it enhance its overall operations and productivity.

Core competence analysis Newcrest core competency draws from its efficient technology which is comparatively cheap. This technology is effective for bulk mining methods and is particularly applied for large orebodies, as well as for selective underground mining techniques. This makes the companies overall operation costs to be less expensive as compared to that of its main rival companies. Newcrest also boasts of elaborate experience in the mining industry that spans for several decades. In particular, Newcrest has deep experience in the development and commissioning of operations in both large and small scale. This experience has seen its Research and Development department pioneer the world’s leading technology of underground bulk mining. As such, the investment has seen Newcrest advance caving as a technique in mining with its application being employed at the Ridgeway and Telfer mining

11 fields. A further application of this new technology is set to be extended to Cadia East mining field, as well as the Wafi-Golpu mining field (Trott, Maddocks & Wheeler 2009, p. 27).

Performance analysis Resources at Newcrest’s disposal have gradually seen an improvement as the company seeks to improve its efficiency in operations. The company’s resources are also relatively improved and efficient as compared to resources owned by other companies in the industry. Technologically, Newcrest has been leading through its innovations that have seen the company pioneer the underground bulk mining process (Cruz-Cázares, Bayona-Sáez & García-Marco 2010, p. 1013).

Portfolio analysis Newcrest has a single business portfolio of mineral production although the company’s operations are spread in different geographical locations. The market segment, however, includes gold, copper, and to some small extent silver (Tudor & Valeriu 2011, p.

754).

Additional Challenges for the Company The ongoing global economic recession is likely to impact negatively on the overall operations of the company in the long run. Most economies in the world are struggling and the impact will be negative on the value of their currencies. Given that some of the countries where Newcrest’s minefields are located are actually third world, including Ivory Coast and Fiji, the financial melt down will most likely affect the performance in these countries. The cost of production will most likely go up forcing the prices of the minerals to shoot up as well.

The Carbon Tax The mining activities of Newcrest come with negative effects to the environment. As such, all the concerned jurisdictions in which the company executes its activities will have no

12 alternative but to raise the carbon taxation to be charged on the company. In the long run, this tax increase will have its negative effects on the company’s operations because it will increase its operation costs. Thus, Newcrest will be forced to equally raise its selling price in order to be able to recoup the additional charges levied on its operations through taxation (Devarajan et al 2011, p. 1).

Conclusion Newcrest Mining Limited is an Australian based firm that deals in the business of producing mainly gold and copper. The company operates in more than one geographic location, expanding its operations in different countries where mineral deposit fields are found. Presently the company is conducting its mining business in mineral deposit fields found in Indonesia, Papua New Guinea, Fiji, as well as Ivory Coast, and in the home country of Australia. Newcrest’s main business strategy focuses on maximizing value to its shareholders who include the employees, the contractors, and the communities living around the minefields. One of the major challenges for the management has been fluctuating US dollar value relative to the local currencies of countries where they have set up operations.

The main strength for the company has been its capability to execute bulk mining at comparatively low costs which enhances its overall operations’ efficiency. However, one other threat for Newcrest’s existence is the fact that mineral deposits are getting depleted over time, thus challenging the company’s future existence in the long term. Newcrest also boasts of long term experience in the mining industry operations which have seen the company integrate lean philosophies which it borrowed from its predecessor company, Newmont Australia Limited.

Recommendations Newcrest needs to increase its exploration activities so as to be able to enhance its chances of conducting sustainable business for longer periods of time. Mineral deposits get

13 depleted with time and therefore the company ought to ensure that they have enough mineral reserves to sustain the company’s continuity in the long term. The appropriate expertise in the industry is also limited as there are no enough personnel with proper skill to serve in this industry. The company should therefore take the initiative to develop personnel with the needed skills, especially in countries where they have set up operations. This will help in reducing labor costs resulting from bringing in foreign experts to work in far off countries. In seeking to develop local expertise, priority should be given to the local communities so as to be part of its social responsibility program. The research and development department must also be allocated enough funding to provide them with the power and capability of devising more technologically efficient methods to be employed in the mining activities. The more cost efficient these processes will be, the more competitive Newcrest will be in its operations.

14 List of References Aghdaie, S, & Zardeini, H 2012, 'A SWOT analysis of Persian handmade carpet exports', International Journal of Business & Management, vol. 7, no. 2, pp. 243-251, Business Source Complete, EBSCOhost, viewed 21 August 2012.

'Business Policy & Strategy Conference Paper Abstracts' 2010, Academy of Management Annual Meeting Proceedings, pp. 1-152, Business Source Complete, EBSCOhost, viewed 21 August 2012.

Connor, T 2011, 'Internal resource audit for strategists—A proposal', I-Business, vol. 3, no. 3, pp. 287-294, Business Source Complete, EBSCOhost, viewed 21 August 2012.

Cruz-Cázares, C, Bayona-Sáez, C, & García-Marco, T 2010, 'R&D strategies and firm innovative performance: A panel data analysis', International Journal of Innovation Management, vol. 14, no. 6, pp. 1013-1045, Business Source Complete, EBSCOhost, viewed 21 August 2012.

Devarajan et al, 2011, 'Tax policy to reduce carbon emissions in a distorted economy: Illustrations from a South Africa CGE Model', B.E. Journal of Economic Analysis & Policy: Advances in Economic Analysis & Policy, vol. 11, no. 1, pp. 1-22, Business Source Complete, EBSCOhost, viewed 21 August 2012.

Grundy, T 2006, 'Rethinking and reinventing Michael Porter's five forces model', Strategic Change, vol. 15, no. 5, pp. 213-229, Business Source Complete, EBSCOhost, viewed 21 August 2012.

Maritz, J, Poggenpoel, M, & Myburgh, C 2009, 'Core competencies necessary for a managerial psycho-educational training programme for business team coaches', South African Journal of Human Resource Management, vol. 7, no. 1, pp. 74-81, Business Source Complete, EBSCOhost, viewed 21 August 2012.

15 Narayanan, V, & Fahey, L 2005, 'The relevance of the institutional underpinnings of Porter's five forces framework to emerging economies: an epistemological analysis', Journal of Management Studies, vol. 42, no. 1, pp. 207-223, Business Source Complete, EBSCOhost, viewed 21 August 2012.

Renko, N, Sustic, I, & Butigan, R 2011, 'Designing marketing strategy using the five competitive forces Model By Michael E. Porter -- Case of Small Bakery in Croatia', International Journal of Management Cases, vol. 13, no. 3, pp. 376-385, Business Source Complete, EBSCOhost, viewed 21 August 2012.

Sankaramuthukumar, S, & Alamelu, K 2012, 'A SWOT analysis of Sri Lankan insurance sector', IUP Journal of Risk & Insurance, vol. 9, no. 1, pp. 27-47, Business Source Complete, EBSCOhost, viewed 21 August 2012.

Trott, P, Maddocks, T, & Wheeler, C 2009, 'Core competencies for diversifying: case study of a small business', Strategic Change, vol.18, no. 1/2, pp. 27-43, Business Source Complete, EBSCOhost, viewed 21 August 2012.

Tudor, I, & Valeriu, C 2011, 'Product portfolio analysis - Arthur D. Little Matrix', Annals of the University of Oradea, Economic Science Series, vol. 20, no. 1, pp. 754-760, Business Source Complete, EBSCOhost, viewed 21 August 2012.