Newcrest Mining Ltd (NCM)

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14 August 2020

Results 

Full Year 2020

Full Year 2019

Change

Gold production (million ounces)

2.17

2.49

-13%

Revenues (US$m)

3,922

3,742

+5%

Realised gold price (US$/oz)

1,530

1,269

+21%

All-In Sustaining Costs (US$/oz)

862

738

+17%

Underlying earnings (US$m)

750

561

+34%

Bloomberg Consensus (US$m)

705

 

 

Final Dividend (US$)

0.175

0.145

+20%

Newcrest Mining (NCM) posts larger profit thanks to surging gold price 

What happened?

  • Newcrest Mining (NCM) – Australia’s largest gold producer – posted a 34% lift in underlying earnings to US$750m, which was above the expectations of eight analysts surveyed by Bloomberg. 
  • NCM will pay investors a US$0.175 per share fully franked final dividend on 25 September, which is above analyst expectations. It will trade ex-dividend on 21 August. This is the cut-off for eligibility of the payment.  
  •  As is the case with most miners, many of the key metrics were well telegraphed three weeks ago in a quarterly update to the market. This included gold production, the realised gold price and costs for each of its commodities, which means that there were few surprises for the past year.
  • While NCM produces gold, copper and silver, it is predominately a gold miner. The yellow metal accounts for ~85% of the group’s revenue while copper makes up the rest. Silver only generates ~0.5% of the Group’s revenue. NCM operates a number of major mining sites. This includes Cadia in NSW, Telfer in WA, Lihir in PNG and Red Chris in Canada, which it recently purchased for US$769m. 

Why did it happen?

  • The major drivers of the stronger profit were a higher gold price, a lift in copper production, a weaker Australian dollar and a lower depreciation expense. 
  • The price of gold has managed to hit a record high in recent weeks due to defensive buying in the COVID-19 pandemic era. NCM’s average realised gold price (what it received for each ounce of gold sold) surged by 21% over the year, which more than offset a 13% decline in production. Its Lihir mine was a drag, with production declining by 17% over the year. 
  • Copper also contributed to the lift in earnings, thanks to a 30% jump in production of the metal, which made up for the more modest 8% slide in prices. Combined, the lift in revenue for both metals was enough to offset a lift in costs.
  • NCM has recently refinanced debt at a lower cost and extended the debt maturity profile of its loans. In May and June, the gold miner raised around A$1.2bn from investors at A$25.60 per new share. While the additional shares hitting the market briefly pushed NCM shares lower, it was quick to recover thanks to the pandemic’s impact on gold prices.

Where to now?

  • While its profit and dividend were higher than last year and ahead of consensus, it warned of a weaker FY21, which seemed to drag NCM shares lower. It anticipates a slight drop in gold production and higher costs. The weaker output is largely due to a softer outlook for its two largest producers; Cadia and Lihir. NCM expects additional costs in the order of $30-$40m to deal with COVID-19 (including flights, transport, rosters, screening and testing). This compares with a prior estimate of ~$20m. 
  • NCM shares are still outperforming the broader market by ~20% so far this calendar year.

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NCM

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