should you buy Newcrest Mining ?

In today’s daily we have covered stock research on  Newcrest Mining (HOLD).











 
The S&P 500 was down by 0.85points or 0.04%on Tuesday to 2037.50 points.  U.S. stocks edged lower on Tuesday afternoon after the Dow and S&P 500 managed to touch freshintraday records for a fifth straight session in early trading. The benchmark has rallied more than 9 percent from a six-month low in October, buoyed by supportive economic data and solid corporate earnings reports. For the year, the index is up over 10 percent.

There were no U.S. government economic reports on Tuesday due to the U.S. Veterans Day holiday, which also served to keep volume light. Cable providers remained under pressure for a second straight session after U.S. President Barack Obama said on Monday that Internet service providers should be regulated more like public utilities. Comcast was down 0.7 percent. In Europe the FTSE 300 index rose 0.3% as the weakness in the mining sector was offset by a 5.4% rise for UK telecom heavyweight Vodafone.




S&P 500 Daily Chart (Source – Thomson Reuters)
S&P ASX 200was down by 6.9points or0.12%on Tuesday and closed at 5517.1 points. Resources giantBHP Billiton lost 1.5 per cent to $34.17, main rival Rio Tinto dropped 1.2 per cent to $60.51, while iron ore miner Fortescue Metals Group slid 4.4 per cent to $3.02. Australian Bureau of Statistics data showed house price growth continues to surge in Sydney driven by investors rather than owner-occupiers.

Fertiliser and explosives maker Incitec Pivot jumped 5.5 per cent after it took the step to make massive ­write-downs as it reported a 33 per cent slump in annual profit. Uranium miner Paladin Energy was again the best performing stock in the ASX?200, up 6.8 per cent to 39.5¢, after the spot price for the radioactive material lifted for the sixth session in a row.  Iron ore is at $US75.50 a tonne. SPI futures are down 8 points. The following stocks will trade ex-dividend today: Australian Pharmaceutical Industries, Desane Group, E&A Ltd, Macquarie Group, Zicom.
 

Paladin Daily Chart (Source – Thomson Reuters)
 
Top Performers on the ASX 200 were :-


 
Stock of the Day - Newcrest Mining (HOLD)

Newcrest Mining (NCM) reported its 2014 results with a statutory loss of A$2.2B and underlying profit of A$432M. Sales revenue went up by A$265M (7%) indicating higher production and sales which balance the impact of lower gold price. The free cash flow of A$133M after capital expenditure of A$843M was reported. The EBITDA of A$1,514M (37% margin) and EBIT of A$821M (20% margin) was witnessed. NCM’s balance sheet as at 30 June 2014 reflected a gearing of 33.8% and cash & undrawn debt facilities of A$1,808M.


Sales Revenue (Source – Company Reports)

The Company’s gold production rose by 14% year-on-year to 2.4Moz. Copper production increased by 7% to 86kt. NCM’s performance was not very satisfactory, particularly Lihir.

With regards to the projects, Cadia East PC2 west crusher is now fully operational. The Company also reported PFS4 nearing completion for Golpu. All sites achieved production and cost guidance.


Production Changes between FY13 and FY14 (Source – Company Reports)

As per the September 2014 quarterly updates, gold production was witnessed to be 561,731 ounces and Copper production was 24,831 tonnes. Average realized gold price of A$1,393/oz equaled average realized margin A$529/oz. Each operation had an AISC below the realized gold price. The Cadia East Panel Cave 2 commenced commercial production from 1 October 2014. Wafi-Golpu updated pre-feasibility study on lower capital cost start-up options, which is expected to be complete by December 2014. Further, drilling at Gosowong is focused on the Salut Vein and Toguraci West. We also note a waning AISC per ounce since FY13. More particularly, Sept quarter 2014 A$ AISC per ounce was 5% lower than that of Jun 2014 quarter. The Company nonetheless is illustrating efforts on cost reduction and productivity initiatives across its business.


Group AISC per Ounce (Source – Company Reports)

A detailed analysis of the Cadia Performance indicated that Cadia East Panel Cave 2 commenced commercial production from 1 October2014, as mentioned earlier. The gold production of 153koz, 1% lower than Jun FY14 was noted. Copper production of 17.5kt was 7% higher than the prior quarter. All-In Sustaining Cost is expected to see a momentary upsurge in next quarters as Cadia East PC2 will move for full production. Further, NCM intends to plan for construction of Cadia East Panel Cave 2 east crusher.


Cadia East Mine Production (kt) (Source – Company Reports)

With regard to performance at Lihir, gold production of 154koz, which is a dip by 12% than JunQ, was noticed along with lower gold grade. 3% increase in mill throughput irrespective of planned shutdowns in autoclaves and maintenance in the crushers, was noted. The Company reported that stockpiles were the primary source of ore feed (93% for SepQ).


Tonnes Mined ex-pit (kt) at Lihir (Source – Company Reports)

As aforementioned, stockpiles are an essential part of the Lihir pit optimization. The below example depicts ore sources above 2 g/t and reserves below this are stockpiled for future processing, as highlighted by NCM.



Average Strip Ratio vs. Mine grade at Lihir (Source – Company Reports)

Overall, the Company confirms a good progress on capital and cost reduction initiatives. NCM plans to focus on productivity and “cost-out” across the business. Relatively low performance at Lihir leads NCM to improve the uptime of the process plant. The Company further reconfirmed to maintain the FY15 guidance.


Other Operating Asset Performance_September 2014 Quarterly Updates (Source – Company Reports)

As per the outlook for 2015, the Company aims to realize the full potential of each of its assets while emphasizing on operating discipline, cash focus, and profitable growth. It aims to yield a higher return on invested capital and reduce debt while returning to pay dividends. NCM has illustrated significant work force reductions with permanent work force reduction by 15% and contractor/ project hire reduction by 45%. More importantly, the Company aims to be free cash flow positive in FY15. Gold and copper production is expected to be 2.2 to 2.4 Moz and 75 to 85kt, respectively. NCM’s FY15 effective tax rate is expected to be ~ 30%. Further, the Company believes to have commercial production from Cadia East Panel Cave 2 around mid-FY2015 whereas Golpu updated prefeasibility study is expected by end of CY2014.


FY15 Exploration Activity (Source – Company Reports)

Looking at the entire scenario with a blend of ups and downs, we put a HOLD recommendation for this stock at the current price of $8.98.
 

 
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