Newcrest Mining Ltd (ASX: NCM)

Core Performance Disappoints (1HFY18): Newcrest (ASX: NCM) is one of the world’s largest gold mining company and operates its mines in four countries, with geographic focus on Australia, the pacific region and Asia. The company produced 1.14 Million ounces of Gold during 1HFY18, which was 8% lower than the previous period. Gold Production volume was negatively impacted due to temporary suspension and subsequent progressive restart of the mining activity at Cadia East in early FY18, coupled with lower gold head grade at Lihir, Telfer and Gosowong. This was partially offset by an increase in mill throughput at Lihir, Telfer and Gosowong. On financial front, the revenue turnover of $1,717 Mn in 1HFY18 has been lower by 5% than the previous 1HFY17 turnover of $1,807 Mn. EBITDA contracted at 20% to $624 Mn during first half of the year from $783 Mn in 1HFY17 due to higher operating cost. Underlying profit was recorded to $116 Mn in 1HFY18 against $157 Mn in 1HFY17, majorly driven by lower copper and gold sale volume which is related to the effect of the seismic event at Cadia that occurred during the same period along with higher depreciation expenses and strengthening of the Australian dollar against US dollar. However, free cash flow of $134 Mn enabled a 4% reduction in net debt to $1.4 Bn. Furthermore, the company has declared Interim Dividend of US$7.5 cents per share that was fully franked with ex-dividend date of 21 March 2018. This will be paid on 2 May 2018.

Joint Venture with Lundin Gold seems to augur well with growth prospects: Recently, the company has entered into an agreement with Toronto listed and Ecuador focused gold miner Lundin Gold Inc. The company will spend US$250 Mn to acquire a total of 57.7 million common shares of Lundin Gold, representing a 27.1% minority interest in Lundin Gold. It is expected that the Gold mine will commence its production by end of 2019. This deal will help NCM to expand to exploration acreage that Lundin has, and it will also secure exposure to high potential orebodies in future. Meanwhile, we believe that the stock is “Expensive” at the current market price of $21.85 based on first half year subdued performance.
 

Summarised Financial Performance (Source: Company Reports)

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