The ratings agency Moody’s has cut Newcrest Mining Ltd’s credit rating, declaring its outlook as negative, after the gold miner announced a AUD$6 billion (K12.6 billion) asset writedowns in June.

The Lihir gold mine. Credit: Newcrest

Moody’s said its downgrade–from Baa2 to Baa3–affected about AUD$2 billion (K4.2 billion) in debt securities.

‘The downgrade to Baa3 primarily reflects our expectation for weaker operating and financial metrics over the next two to three years, following a series of production disappointments, future guidance reductions and rising cash costs,’ Moody’s senior analyst Matthew Moore said.

The rating outlook could revert to stable if Newcrest completes these initiatives and its financial metrics improve to levels that are consistent with its Baa3 rating on a sustainable basis.

Moody’s said Newcrest’s rating could also be downgraded if the company was unable to reduce costs to a level where it would be cashflow neutral or positive given current gold prices.

Production costs

Last week, Newcrest announced in its quarterly report it expected lower production in the September quarter, after a strong lift in gold and copper output in the June quarter.

It reported however, that annual production to June 2014 would be 2–2.3 million ounces, compared to 2.11 million ounces in the year to June 2013.

It noted that production costs were US$1,283 (K2,592) an ounce.

Gold is currently trading at around US$1300 (K2,991) an ounce.