Newcrest Mining: Project development to reset cost base
About the author:
- Author name:
- By Mat Collings
- Job title:
- Research Analyst
- Date posted:
- 07 December 2021, 9:00 AM
- Sectors Covered:
- Using feasibility study announcements and the recent acquisition of Pretium (subject to regulatory approval) in Canada as a catalyst, we undertake a full bottom-up review of our assumptions for NCM.
- The key change since our previous update is to capital assumptions across NCM’s portfolio and the associated changes to operating costs.
- The price target for NCM reduces by about 10% to (login to view) and we retain an add rating on the stock.
Full rebuild of our modelled operating assumptions for NCM, and integration of the Brucejack mine from the Pretium acquisition (which remains subject to regulatory approval in Canada in early CY22).
NCM recently published studies outlining medium term development plans for its major assets at Cadia, Red Chris, Havieron (Telfer) and Lihir.
We integrate these updated opex, capex and production figures into our NCM model, along with Pretium’s Brucejack mine in Canada – maintaining a base case in line with Pretium’s published technical studies (though noting NCM’s larger ambitions for the province).
Our capital estimates move up substantially from previous assumptions, but our operating cost estimates also fall considerably.
Forecast and valuation update
Our revenue and production forecasts are not substantially changed in the current year given the timing of project development plans and the Pretium acquisition.
Details of changes to our financial forecasts are provided on page 4.
On integration of the new detail, our price target reduces to (login to view) per share and we maintain an add rating, using a sum of the parts DCF model.
There is a lot of work to be done across the NCM portfolio in the coming years, from the (relatively) incremental work to continue developing Cadia to the major changes in operation strategy at Red Chris and Telfer/Havieron. Execution risk is the key one to watch going forward.
We see the potential for much greater value at Telfer/Havieron and Brucejack than current information from the company allows us to model.
We see no major near-term catalysts for NCM but would anticipate more positive information on the opportunities for the company in Canada (at Red Chris and Brucejack) and at Havieron in the coming months as likely to provide upside to our current base case.
NCM is progressing a series of major capital development programs across its operations to shore up gold production and drive down costs. The risks of delays or cost overruns in these investments is the key risk to NCM in the short/medium term.
Global commodity prices and currency fluctuations (given NCM’s geographic spread) are the key risk to revenue projects in the near term.
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