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Newcrest Mining

Adrian Prendergast

Key points

  • Newcrest Mining (NCM) posted a reasonable 4Q17 result, down on the year but better than expected following a large seismic event in April that brought Cadia to a standstill.
  • 4Q17 group gold production of 552koz was ahead of our forecast of 508koz.
  • All-in sustaining costs also finished higher than expected at US$968/oz (vs Morgans US$902/oz) – including seismic related opex at Cadia.
  • Lihir posted a strong performance in 4Q, easily outpacing our estimate, helping to offset some of the lost production at Cadia and Telfer.

Good 4Q17 performance

4Q17 group gold production of 552koz, was down 8% Quarter on Quarter but 9% ahead of our forecast. The better-than-expected 4Q performance was driven by a sharp pick-up in production at Lihir (with throughput touching 14.5mtpa) and larger drawdown of stockpiles at Cadia. Copper production was more largely impacted in 4Q at 13kt of contained copper (vs Morgans 12kt) due to Cadia's high share of group copper output.

FY17 not bad vs guidance

Group gold (2.38moz) and copper (83.9kt) output both finished within the lower end of company guidance. Meanwhile Cadia (actual 620koz gold vs 820koz guidance) and Telfer (actual 386koz gold vs 400-450koz guidance) both fell short of their individual guidance ranges. Gosowong finished the year ahead at 296koz (vs guidance of 220-270koz) after a strong 2H. We had expected Cadia to fall short given the operation was offline for the majority of the 4Q, but Telfer failed to bounce back as expected from a weather impacted 3Q.

Margins slip on seismic event

No changes to guidance on Cadia as the recovery work continues at NCM's most profitable operation. Cadia's outage had a large impact on all-in sustaining costs (AISC) which increased from US$713/oz in 3Q to average US$968/oz in 4Q. NCM has flagged that it intends on capitalising expenses related to the seismic event, which as a result reduced Cadia's AISC by US$839m to leave a better looking underlying group AISC of US$787/oz. After updating our model for the result, we make marginal changes to our valuation.

Newcrest confident on Cadia – some fears still linger

NCM has confidently maintained its guidance on forecasts for the pace and cost of the recovery process for both PC2 (which is now operating) and PC1. We remain cautious in our forecasts on Cadia, as work to recover production continues. We expect this will see FY18 margins impacted, although this is already reflected in our forecasts.

We set our 12-month share price target at an equal weight between our base case (A$24.86) and spot valuation (A$18.64) to arrive at A$21.75 (previously A$21.48).

We retain our Hold recommendation.

More information

Morgans clients can login to view our detailed report 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.