Newcrest Mining
About the author:
- Author name:
- By Adrian Prendergast
- Job title:
- Senior Analyst
- Date posted:
- 31 October 2016, 9:33 AM
- Sectors Covered:
- Mining, Energy
Key points
- Newcrest Mining (NCM) posted a steady 1QFY17 operational result, with group production of 616koz gold (+3% quarter-on-quarter) roughly in line with our 621koz estimate.
- Group all-in sustaining cost (AISC) of US$790/oz was also as expected (vs Morgans est. US$789/oz).
- A busy quarter for NCM in greenfield, picking up a 10% stake in SolGold, some good hits in exploration, and progressing Wafi Golpu.
- Brownfield still in focus, we have extended the life of Telfer in our model, while NCM aims to further expand Cadia and Lihir output.
Steady except the maintenance at Lihir/Telfer
NCM posted healthy group 1QFY17 gold production of 616koz (+3% quarter-on-quarter), leaving it aligned to FY17 guidance of 2.35-2.6moz, with copper also on track for FY17 guidance. The exception to the steady performance was Lihir Island, with a maintenance shutdown during the quarter negatively impacting volumes (with Lihir production of 206koz vs Morgans 229koz). NCM's plans to increase throughput at Lihir to 13mtpa continued and is on track for end 2QFY17. Cadia posted a consistent 195koz of gold (vs Morgans est. 189koz) in 1QFY17, with planning progressing on increasing throughput to 32mtpa.
Newcrest acquires 10% stake in SolGold
NCM was successful in what became a competitive process with BHP Billiton to acquire a 10% stake in SolGold. SolGold has an 85% interest in the Cascabel Project in Ecuador that holds a big copper-gold porphyry. SolGold sided with NCM given its demonstrated core competencies in block caving, which looks like the best development concept for the massive, deep, and steeply dipping deposit. Still in its exploration phase, the sizeable project has a large development time horizon, but also offers the opportunity for substantial growth long term.
Some good hits in West Africa
Northwest from Bonikro in Cote d'Ivoire, NCM announced a series of good hits from exploration drilling at its Séguéla project. Following the results, NCM has exercised its option to acquire the project for US$3.5m plus a 1% net smelter royalty. This is in line with NCM's strategy to pursue high-risk but low-cost exploration across West Africa, North and South America. NCM did withdraw from an exploration permit in North Queensland after failing to identify a "Newcrest-sized target".
Well positioned to chase higher growth/dividend
Gold prices may be impossible to reliably forecast, but NCM has positioned itself to perform in either a high or low gold price environment through:
- Its high-margin/long-life operations offering defendable positive cash flow;
- The significant potential for additional growth being added from current greenfield/brownfield projects; and
- Its ability to increase dividends on any increase in the gold price.
The key risk to our view on NCM remains global macro uncertainty impacting both gold and currency markets. We maintain our Add recommendation.
More information
Morgans clients can login to view our detailed report and share price target for Newcrest Mining (NCM). Alternatively, please contact your nearest Morgans office for access.
Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.
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