Get up to 2 Years of free subscription by inviting your friends to KALKINE!

For every friend of yours who joins KALKINE, we'll give you 3 months of free subscription (up to a limit of 24 months free subscription). If you recommend 3 friends and they join within a month of you referring them, you get 1 year free subscription to KALKINE reports added to your account (up to a limit of 24 months free subscription). Simply reply to this email with their name, e-mail and phone number.
 

Newcrest Mining Video


 

Newcrest Mining (HOLD)

Newcrest Mining (NCM) few days ago released its quarterly report for the period ending 31 December 2014. The updates were more or less satisfactory and entailed gold production guidance for FY15 being raised to 2.3-2.5Moz from 2.2-2.4Moz. Copper production guidance for FY15 has been raised to 90-100kt from 75-85kt. Group all-in sustaining cost guidance range for the year was lowered to AUD 2.3-2.5bn from AUD 2.3-2.6bn owing to stronger copper production, improved operating efficiencies and cost reductions from the Edge program; and the group all-in sustaining cost for the quarter of AUD 963/oz was reported. Group all-in sustaining cost for the quarter of USD 826/oz (at an average AUD/USD exchange rate in the quarter of $0.8579) was reported. The Company further mentioned about quarterly gold production of 577,110oz. Average realised gold price for the quarter of AUD 1,402/oz. The quarterly copper production of 25,508 tonnes has been conveyed.


Production Highlights (Source – Company Reports)

From operations standpoint, NCM reported a faster production ramp-up exceeding Ridgeway grade decline for Cadia East than the earlier expectation with 102,347 ounces of gold produced in the quarter. In fact, a healthy performance of the Telfer operation has also been reported with an increased quarterly gold production of 140,195oz.


Aerial View of Surface Breakthrough of Panel Cave 1 at Cadia (Source – Company Reports)

Specifically, significant gold production outperformance relative to expectations at Cadia (165koz) and Telfer (140koz) was noted which resulted in a raised gold production guidance. Production from Cadia Valley rose 8% due to increased mine production at Cadia East. The Cadia East Panel Cave 1 reached a major milestone by safely propagating through to the surface and Cadia East production touched an annualised rate of 12.2Mtpa in the quarter. Throughput rates at Telfer backed a 4% rise in gold produced and a 6% increase in underground mine production is expected based on efficiency improvement initiatives. However, performance at Gosowong, Lihir and Hidden Valley was below expectations. In fact, a fatality at Hidden Valley on 6 December 2014 resulted in closing of milling operations for 17 days. Lihir’s gold production was reported to be more than the previous quarter but was less than what was expected due to unplanned maintenance issues. Total production of 644koz (annualized) was below the bottom end of prior full year guidance of 700-740koz. Despite unforeseen maintenance, throughput increased to 10.39Mtpa rate from 10Mtpa. NCM restated the target to improve mill throughput to 12Mtpa by the end of the year. The fall in the exchange rate led to an increase in Lihir’s AUD all-in sustaining cost. High grade ore access in Gosowong was affected by poor ground conditions. It is also noted that higher mine production at Bonikro was offset by lower grades and recoveries. Based on this, we believe that a strong 2H can help achieve group guidance and Lihir’s revival.

NCM continued to carry out exploration programs across a portfolio of greenfield discovery projects during the December 2014 quarter. About seven exploration drill rigs in operation during the quarter have been reported.


Golpu_A Spectacular Resource (Source – Company Reports)

The Company also released the results for the Pre-Feasibility Study for its 50% owned Wafi-Golpu gold-copper project in PNG. Specifically, the final feasibility study is set to be completed on Stage I by end of CY15 along with pre-feasibility for Stage II. The staged approach looks to be positive and is light on the balance sheet. The capital has been reduced from US$4.8bn for the entire project to US$2.3bn for Stage I. Further, the average annual production of 81ktpa copper and 137kozpa gold has been determined with other aspects such as a high grade mining inventory of 146Mt @ 1.02g/t Au and 1.60% Cu, C1 cash costs of US$0.78/lb and a 27 year life-of-mine. The Company expects to commence production in 2020 from an initial 3Mtpa Block Cave to 6Mtpa from a second Block Cave from 2024. An increased unit production costs of US$35/t and capital intensity of US$22,000tpa copper equivalent is noted. However, this is reflective of competitiveness in view of various international projects. The Company believes that the total operating costs for the project will be 53% higher at US$34.6/t owing to processing and infrastructure costs. Nonetheless, the capital expenditure has dipped by 53% to US$2.3bn due to the removal of power supply, drilling, studies from the budget, reductions to owners’ costs and the processing plant budget. This looks to be a long-term shot with a reduced capex to benefit in FY16/17 subject to the Stage II development plans.


NCM Daily Chart (Source - Thomson Reuters)

From market standpoint, lower oil prices may deliver indirect secondary cost savings in FY15 in view of annual fully hedging of each financial year’s oil exposure. Positive vibes gradually stem with regards to gold equities and internal efforts by NCM in CY15 in view of factors such as lower costs, operational improvement, Cadia East ramp-up, etc.

Based on the foregoing, we put a HOLD recommendation for this stock at the current price of $14.39.