Newcrest Mining Ltd (NCM)

19 Aug 2021

A year of records for Australia’s largest gold miner, Newcrest Mining (NCM)

What happened?

• Newcrest Mining has bettered expectations with its full year earnings. Australia’s largest gold miner reported an 80% increase in net profit after tax to a record  $1.16 billion. Revenue rose 17% compared to the same time last year to $4.6 billion. Earnings before interest, taxes, depreciation, and amortisation (EBITDA) jumped 33% to $2.4 billion. The final dividend of US 40 cents per share, was ahead of market expectations and helped deliver a boost to the share price in response to the result.

• Approximately three quarters of NCM’s total revenue is derived from gold. Most of Newcrest’s gold sales in the period (90%) were unhedged, and as a result benefitted from the strong rise in gold prices. Gold revenue rose by 9% to $3.58 billion compared to the prior year, thanks to the miner capturing a 17% increase in the realised gold price. Gold production was actually 4% lower at 2.1 million ounces, reflecting the sale of a mine – Gosowong, and other factors such as lower grades and rates of processing. Although balancing those factors was the addition of production from NCM’s 32% stake in Lundin Gold and record volumes mined and processed at the Cadia operations.

• Newcrest’s all in sustaining cost (AISC) was 6% higher per ounce compared to the prior period, reflecting a range of factors including lower gold production and sales, the impact of a stronger Australian dollar on costs, higher capital expenditure and costs associated with COVID- 19 measures. These costs were partially offset by a higher realised copper price, record copper sales volumes at Cadia, the divestment of Gosowong (and its higher cost of production), and a favourable contribution from Newcrest’s 32% equity interest in Lundin Gold Inc. Cadia achieved a record low annual AISC of negative $109 per ounce, positively impacting Newcrest’s total AISC, despite a lower contribution of ounces compared to the prior period. Notwithstanding a higher AISC per ounce, Newcrest’s AISC margin per ounce in the current period was 31% higher than the prior period as a result of a higher realised gold price.

• Copper makes up 25% of NCM’s total revenue. Whilst a far smaller proportion compared to gold, copper revenue rose sharply in the last year - increasing by 46% compared to the previous corresponding period. The jump reflects the 42% increase in the realised copper price, which rose to $3.66 per pound from $2.57 and higher levels of copper production and sales at Cadia. Silver revenue rose by 63% to $26 million.

• The miner is making progress on a significant development pipeline which includes the Telfer, Havieron, Lihir & Cadia operations. 

• The NCM result was well received on a day that saw the overall market lower including solid declines for NCM’s peers. Helping the market reaction were NCM’s top and bottom line metrics that were ahead of analyst’s forecasts. Although, shares in the miner have underperformed the broader market having fallen by 1% compared to the ASX 200 which is up 13% in year to date terms. 

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