Newcrest Mining: Q3 falls short of expectation

About the author:

Mat Collings
Author name:
By Mat Collings
Job title:
Research Analyst
Date posted:
29 April 2022, 8:00 AM
Sectors Covered:

  • Group gold production of 479.9koz fell short of consensus and Morgans expectation (553koz and 548koz respectively) while costs also exceeded analyst forecasts.
  • Newcrest Mining (ASX:NCM) is guiding to a strong Q4, needing at least 600koz of production to meet the lower end of revised guidance (1,925koz). This will depend upon a strong performance from Cadia, Lihir and the new Brucejack operations.
  • We revise our production forecast for FY22 to 1,903koz, just short of NCM’s lower guidance. Our price target moves to (login to view) and we keep NCM on a Hold rating.


Q3 production reporting and updated FY22 guidance released.


Production at both Cadia and Lihir was lower than anticipated. Cadia did not return to full processing tonnages in the period despite the milling circuit returning to full capacity in the prior quarter, while Lihir was impacted by more planned and unplanned mill downtime.

Both these operations will need to see a lift to performance compared to any other period in FY22 to achieve gold production guidance and while we see no reason Cadia shouldn’t return to historical production levels (despite taking longer to do so than we anticipated), Lihir’s unreliable recent production record presents a risk.

Group gold production guidance has been revised to 1,925-2,025koz (from 1,800- 2,000koz). While this is at the upper end of original guidance, the new target relies on circa 100koz of production from the new Brucejack mine, reflecting the lower end performance of NCM’s other operations, particularly Lihir.

AISC guidance for FY22 has reduced to the lower half of original guidance, with higher copper credits and a weaker AUD providing most of the benefit. Capital expenditure is forecast to be below original guidance, with project progress impacted by Covid-19 related disruption and delay

Forecast and valuation update

We revise our production and cost outlook based upon today’s production reporting and updated guidance. Our FY22 production estimate is now 1,903koz, slightly below the bottom end of NCM’s updated range.

This reflects our view on the risk to Lihir meeting forecast. More detail on the impact of these changes is presented on page 4.

Our target price moves to (login to view) on a sum of the parts DCF basis on our revised outlook, and we retain a Hold rating on the stock.

Investment view

We like the long-term outlook for NCM’s operation and project portfolio, with plans to reduce production costs towards an AISC of US$500/oz over the decade.

In the short term, however, we think the risk of NCM missing its production guidance range is elevated without a major turnaround in performance, particularly at Lihir in PNG.

Price catalysts

Any updates on Lihir operations will be critical during Q4, though NCM does not generally provide interim updates to the market.


Operational performance at Lihir and Cadia.

Integration of the Brucejack mine into NCM following its acquisition during Q3.

Gold and copper prices, as well as sentiment towards the resources sector which has softened with inflation/interest rate outlooks weighing on gold and concerns increasing about Chinese metal demand under increasingly severe Covid-19 lockdowns.

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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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