Newcrest Mining Limited

NCM Details

FY20 Result Highlights: Newcrest Mining Limited (ASX: NCM) is a gold mining company that owns and operates a portfolio of predominantly low-cost, long-life mines. During the year ended 30 June 2020, the company produced 2.2moz gold and 138kt copper at an AISC of US$862/oz. For the year, the company reported an underlying profit of US$750 million, up 34% on the previous year, driven by a higher realised gold price and higher copper production at Cadia and Telfer. Further, the financial results were also driven by the favourable impact on operating costs for the Australian operations from the weakening of the Australian dollar against the US dollar. During the year, the company strengthened its balance sheet with a successful equity raising to ensure that it is well placed to deliver its near-term growth options of Havieron, Red Chris, and Wafi-Golpu.

FY20 Result (Source: Company Reports)

Increased Shareholders’ Returns: Newcrest Mining Limited has a track record of paying regular and increasing returns to its shareholders through dividends. Prompted by the solid financial and operational performance, robust balance sheet and outlook, this year the company has increased its full-year dividends by 14%. The company’s Board has declared a final dividend of US17.5 cents per share (100% franked), taking full-year dividend to US25 cents per share, up 14% on the previous year. The final dividend will be paid on 25 September 2020.

Dividend History (Source: Company Reports)

Key Risks:  The company is exposed to the risks related to the changes in commodity prices, foreign exchange fluctuations and general economic conditions, increased costs and demand for production inputs. In addition, the company is also exposed to the risks of obtaining necessary licences and permits and diminishing quantities or grades of reserves, and political and social risks.

Guidance: For FY21, the company expects its total gold production to be in the range of 1,950moz – 2,150moz. Further, the company expects its total copper production to be between 135kt – 155kt. It is worth noting that production guidance is subject to market and operating conditions.

Production Guidance (Source: Company Reports)

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Over the past three months, the stock of NCM has provided a return of 23.11% and is inclined towards its 52-week high. The company has a robust balance sheet with liquidity coverage of US$3,451 million comprising US$1,451 million of cash and US$2,000 million in committed undrawn bilateral bank debt facilities with maturity periods ranging from 2021 to 2023. On technical analysis front, the stock of the company has a support level of ~A$30 and a resistance level at ~A$36. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price of high single-digit upside (in percentage terms). For the purpose, we have taken peers such as Kirkland Lake Gold Ltd (ASX: KLA), Northern Star Resources Ltd (ASX: NST), and Evolution Mining Ltd (ASX: EVN), to name a few. Considering the company’s decent FY20 results, its strengthened balance sheet, and FY21 production guidance, we give a “Hold” recommendation on the stock at the current market price of A$34.160, down by 0.899% on 14 August 2020.

NCM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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