NCM Details
Disappointing Full year results: Newcrest Mining Limited (ASX: NCM) fell 3.9% on August 15, 2016 with the announcement of its full year results that revealed a 24% fall in underlying profit to US$323 million while statutory profit slipped by 12%. The production of 2.439 million ounces of gold has been reported. Gold revenue of $2,857 million was 3% below the prior period owing to a 5% reduction in the realised gold price. Similarly, copper revenue dropped 35% to $403 million against the prior period due to a 24% reduction in the average realised copper price and a 16% decrease in copper sales volumes as a result of lower copper production from Cadia and Telfer.
Underlying profit movement (Source: Company Reports)
Controlling costs and debt:
NCM stock otherwise delivered an outstanding performance this year, and generated over 95% returns (as of August 12, 2016) driven by the solid gold prices rally this year. Moreover, the group’s control over All-In Sustaining Cost margin and declining debt also pleased investors, further contributing to the stock performance. NCM’s net debt fell by 27% or $0.8 billion to $2.1bn as at 30 June 2016 while All-In Sustaining Cost margin fell by 8.4% to $404/oz for the fiscal year of 2016.
June quarter and fiscal year of 2016 performance (Source: Company Reports)
Softness in Outlook: The company commented that first quarter FY17 gold production is expected to be relatively lower than the implied average for FY17 guidance. AISC spend is expected to be maintained at around average rates.
Higher valuations: The major driver for the stock rally of NCM is gold prices rather than its production performance. During June quarter of 2016, the gold production fell by 6.0% to 598koz for the quarter while copper production fell by 7.4% to 21kt during the quarter. This lower gold production was reported on the back of extended suspension of Gosowong production after its earlier geotechnical event in February 2016 and lower grade ore processed at Cadia. Solid Lihir production and ramp up production of Cadia East also could not offset this pressure. Even the group’s All-In Sustaining Cost (AISC) per ounce for the June quarter increased by 8.9% to $787/oz due to $56 per ounce rise in sustaining capital expenditure. For FY16, the group managed to deliver only 0.7% rise in gold production to 2.4moz during the year. Copper production also fell by 14.2% to 83kt during the year.
NCM’s All-In Sustaining Cost margin fell by 8.4% to $404/oz for the year. Meanwhile, the huge rally in the stock placed NCM at unreasonable valuations, which is now trading at a higher P/E. Further, the economic headwinds relating to interest rates at a global level may impact the gold prices. We therefore recommend investors to take profits, and accordingly, give a “Sell” recommendation on the stock at the current price of $24.51
NCM Daily Chart (Source: Thomson Reuters)
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