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* Underlying profit fall not as bad as expected
* Net debt rises to $4.5 bln, gearing over 30 pct
* Shares drop 2.5 pct, while peers climb
(Recasts, adds CEO comments)
MELBOURNE, Feb 14 (Reuters) - Newcrest Mining Ltd
Like its global gold peers, Newcrest is emerging from a tough 12 months when bullion prices plunged 28 percent, sparking big losses due to billions of dollars in writedowns on mines. It is now focused on reining in costs, slowing expansion projects, and mining its highest grade ores to boost cash flow.
While the underlying result was better than the market had expected, analysts were nervous about a 9 percent rise in net debt to A$4.5 billion since June, which could force the miner to sell new shares later in the year to shore up its balance sheet.
"The market's right to be nervous about a potential rights issue. The half-year (result) hasn't quite put that concern to bed," said David Lennox, an analyst at Fat Prophets in Sydney.
Newcrest's gearing rose to 30.5 percent, double its long term target of 15 percent, but Chief Executive Greg Robinson told analysts the board was comfortable with holding the elevated level of gearing for "the next few years".
Investors ignored the reassurance, as well as a statement on Thursday saying the company had no plans to raise equity, and sent Newcrest's shares as much as 2.7 percent to A$10.96. It shares were down 0.9 percent in afternoon trade, against a 0.9 percent rise in the S&P/ASX gold index
PROFIT SLUMP
Newcrest's underlying profit slid to A$207 million ($186 million) for the six months to Dec. 31 from A$320 million a year earlier, however that was better than analysts' consensus forecast around A$166 million.
Net profit fell 88 percent to A$40 million, hit by previously flagged research and development tax payments and a A$47 million writedown of its west Africa exploration assets.
Newcrest declared no interim dividend, due to the slump in profit, the rise in net debt and a focus on completing work on its Cadia East underground mine in the state of New South Wales.
"Overall our focus remains on optimising our current operations, maintaining our growth options and maximising free cash flow to enable the company to reduce gearing and return to paying dividends to shareholders," Robinson said.
The miner still aims to achieve positive free cash flow this year, assuming an average gold price of A$1,450 an ounce, by squeezing out costs as much as possible, he told reporters.
Meeting that assumption could be tough. A Reuters poll of 37 analysts published in January forecast an average gold price of $1,235 per ounce this year. At that price, the Aussie dollar would have to average about 85 U.S. cents to achieve Newcrest's target. The Aussie dollar is now trading above 89 U.S. cents.
Robinson said the company has no plans to sell any assets to help reduce debt, as it would be unlikely to fetch a reasonable price in the weak gold price environment.
Newcrest followed top global producer Barrick Gold Corp
It cut its ore reserves estimate by 11 percent to 78 milion ounces and its resources estimate by 7 percent to 150 million ounces. Unlike bigger rival Barrick, which used a conservative $1,100 price assumption to slash its reserves by 26 percent, Newcrest stuck with an assumption of $1,250 an ounce.
($1 = 1.1133 Australian dollars)
(Reporting by Sonali Paul; Editing by Richard Pullin)
((Sonali.Paul@thomsonreuters.com)(+61 3 9286 1419)(Reuters Messaging: sonali.paul.thomsonreuters.com@reuters.net))
Keywords: AUSTRALIA NEWCREST/EARNINGS