A breach of continuous disclosure obligations has cost  Newcrest Mining Limited $1.2 million following a recent  decision of the Federal Court.  This case highlights the  care that needs to be taken by listed companies in briefing  analysts to ensure that no more information is disclosed  to analysts than that which has already been disclosed to  the ASX.

Listed companies also need to ensure that their  governance structure and disclosure procedures and  policies are appropriate and effective to ensure  compliance with the continuous disclosure rules.  Even  more important than that, listed companies need to make  sure management actually follows those procedures and  policies on a day to day basis.

Recap on continuous disclosure rules

Under the ASX Listing Rules, once an entity becomes aware of any information concerning it that a reasonable  person would expect to have a material effect on the price  or value of its securities, the entity must immediately tell  the ASX that information, unless an exception is  available1.Importantly, in the context of the Newcrest  case, in order for information to come within an exception  under the Listing Rules, it is essential that the  information is confidential and ASX must not have  formed the view that the information has ceased to be  confidential.

Section 674(2) of the Corporations Act 2001 (Cth) gives  statutory force to the continuous disclosure obligations  under the Listing Rules, in circumstances where  information is required to be disclosed under the Listing  Rules and the information: (1) is not generally available;  and (2) would be reasonably expected to have a material  effect on the price of the entity’s securities.

The facts in Newcrest

The agreed facts in Newcrest were that:

  • between 28 and 31 May 2013, Newcrest’s Investor  Relations Manager (Newcrest’s IRM) made  presentations and held various discussions with  analysts in which it was disclosed that Newcrest’s  management expected total gold production for the  2014 financial year (FY14) to be approximately 2.2 to  2.3 million ounces and/or 5% higher than its  previously disclosed guidance for the 2013 financial  year (production information); and
  • on 5 June 2013, Newcrest’s IRM held discussions with  two investment houses in which it was disclosed that  Newcrest’s management expected capital expenditure  for FY14 to be approximately AU$1 billion (capex  information).

Newcrest did not disclose the production information or  capex information to the ASX until 7 June 2013.

Prior to 28 May 2013, Newcrest had made various  announcements in relation to its gold production  guidance for the 2013 financial year, the expected capital  expenditure for FY 2014 ($1.5 billion) and its 5 year  outlook and growth rate for gold production (30-50% over  5 years or 5-10% compound annual growth rate).   However, it appears no specific disclosure had been made  in relation to expected gold production for FY14.

As part of Newcrest’s FY14 budget process, management’s  expectations in relation to total gold production and  capital expenditure as previously announced were under  constant review.  As at 28 May 2013, Newcrest’s revised  expectations, in the form of the production information  and the capex information disclosed to analysts, had been  circulated to the Newcrest Executive Committee in drafts  of the FY14 budget and those draft budgets were  subsequently circulated to the Newcrest board on 31 May  2013.  However, at all relevant times, the FY14 budget had  not been approved by the Newcrest board.

According to the agreed facts, Newcrest’s IRM had  mistakenly formed the view that the production  information had previously been publicly disclosed by  Newcrest’s CEO at a conference in Barcelona and it was  on that basis that he proceeded to disclose that  information to various analysts in the course of his  meetings with them between 28 and 31 May 2013. In fact,  all that had been disclosed by the CEO was that Newcrest  would “increase production in the years ahead at about  5% per annum” and expected “to grow production at 5%  per annum over the next 5 years”.  These statements by  the CEO were consistent with Newcrest’s prior public  announcements in relation to the 5 year outlook, but did  not reveal any specific guidance for FY14.

There was no apparent explanation for the disclosure of  the capex information by Newcrest’s IRM.

It was accepted by Newcrest that:

  • prior to Newcrest’s ASX announcement on 7 June  2014, the production information and the capex information were not generally available; and
  • the production information and the capex information  were both likely to have a material effect on Newcrest’s  share price.

Finally, it was agreed that the disclosure of the production  information and the capex information to analysts on 28  May 2013 and 5 June 2013, respectively, resulted in the  loss of confidentiality in respect of that information on  and from those dates.  Accordingly, the exceptions from  continuous disclosure previously afforded by the Listing  Rules no longer applied and Newcrest was required to  immediately tell that information to the ASX on those  dates.  However, Newcrest did not do so until 7 June  2013.

The decision

Newcrest admitted to two contraventions of section  674(2) of the Corporations Act:

  • firstly, failing to notify the ASX of the production  information during the period 28 May 2013 and 7 June 2013; and
  • secondly, failing to notify the ASX of the capex  information during the period 5 June 2013 and 7 June 2013.

Furthermore, Newcrest also conceded the each of the contraventions was ‘serious’ for the purposes of the  pecuniary penalty provisions of the Corporations Act.

Middleton J accepted the agreed facts and ordered that  Newcrest pay a pecuniary penalty of:

  • $800,000 for the contravention relating to the  production information; and
  • $400,000 for the contravention relating to the capex  information.

Clearly, with the penalties totalling $1.2 million, Newcrest  will pay a heavy price for what, in the case of the production information, may be described as an  unintended breakdown in management’s communication.   This was notwithstanding Newcrest’s admission of the  contraventions and co-operation with ASIC in the  proceedings.

A question was raised during the proceedings as to  whether the production information and capex  information was information that should have been  disclosed at some time earlier than 28 May i.e. prior to its  loss of confidentiality.  Presumably this question was  premised on the argument that the information did not  fall within the Listing Rules exceptions because it was not  information concerning an incomplete proposal or a  matter of supposition or insufficiently indefinite to  warrant disclosure.

Importantly, Middleton J held that the production  information and the capex information related to a  proposal that was incomplete given that it related to  Newcrest’s budget process which, at the time of the disclosure to analysts on 28 May and 5 June 2013, had  not yet been approved by the Newcrest board.  Therefore,  in the absence of the loss of confidentiality caused by the  disclosure to analysts, this information would not  ordinarily require disclosure by Newcrest to the ASX until  it formed part of a budget that had been finalised and  approved by the Newcrest board.

ASIC Policy

The timing of this decision has coincided with the recent  issue of ASIC Report 393: Handling of confidential  information: Briefings and unannounced corporate transactions, which was a report by ASIC on various  investigations it has undertaken to assess and understand  the prevalence of the leakage of market-sensitive  information by listed companies. The report highlighted  analyst briefings as a significant area of risk.  Overall,  ASIC found that the guidance it has given in this area is  adequate and that the challenge is really ensuring that the  rules and guidance are being followed by listed entities  and recipients of information.  ASIC has stated in no  uncertain terms that it plans to achieve this by increased  market surveillance and taking enforcement action where  appropriate.

Lessons for listed companies

It is important that listed companies adopt a governance  structure and appropriate policies to ensure compliance  with their continuous disclosure obligations.  It is even  more important that management actually adheres to  those procedures and policies.  There is no point in having  a well-meaning Disclosure Policy if it is not actually  followed by management, as was the case in Newcrest.   ASIC has made it abundantly clear that continuous  disclosure is most certainly on its radar and the Courts  have sent a strong message to listed companies that special care should be exercised in their dealings with  analysts.