Shares in Value Logo
Product Review Img Vertical

Date : 27/07/2021

Newcrest Mining

ASX :

NCM

Market Cap : $21.34 Billion

Dividend Per Share : $0.193

Dividend Yield : 1.69 %

Buy

52 Week Range : $23.08 - $38.15

Share Price : $25.76

Top quality gold miner with organic growth potential. A Buy for long-term investors.

Company Analysis

Newcrest Mining Limited (ASX: NCM) is one of the largest gold mining companies in the world, and the largest in Australia, producing 2.2 million ounces of gold in FY2020. Together with their subsidiaries, they engage in the exploration, mine development, mine operation, and sale of gold and copper concentrates. Newcrest owns and operates a portfolio of predominantly low cost, long life mines and has a strong pipeline of Brownfields and Greenfields exploration projects. Their reserve and resource base is strong, with current gold reserves representing more than 24 years of production at current rates. Newcrest uses a variety of efficient mining methods for large ore bodies, together with selective underground mining methods to optimise high-grade epithermal deposits and porphyry deposits.

The company primarily owns and operates mines and projects located in Cadia and Telfer, Australia; and Lihir, Papua New Guinea. It also holds 70% interest in the Red Chris mine project located in British Columbia, Canada.

Chart Description automatically generated
Source: Tradingview.com

Despite Newcrest being a top gold producer with high profit margins, it has not really transpired into the share price. We believe it is trading below its fair value and the reason for the underperformance can be attributed to two reasons:

  • Spot gold corrections due to markets being undecided regarding inflation and constant stimulus support by the US Federal Reserve.
  • The overall volatility of NCM share price of late. Let’s not forget that NCM shares reached a high of over $37 a share in 2020. The gold sector has been quite hot since then and it is attracting a lot of money. We have also noticed several small cap gold miners performing exceptionally well, resulting in some of the money being transferred from the large caps to small caps with the expectation of quick short-term profits.

Given the above two themes at play, the underperformance is still an opportunity for long term investors to pick a sure shot winner. A company, one of the largest in the world that produces a ton of gold, explores for new gold, and is able to optimize their operations to keep profit margins consistently high.

Gold Shows Promise?

The performance of gold is driven largely by higher interest rates, particularly during the first quarter and then again in late June on the back of a more hawkish stance than expected by the Fed. The gold price has been very supportive by the concerns of higher inflation which offset part of the drag that a low-interest-rates environment brought. Furthermore, the strong response from governments around the world against a collapse of the economy in the form of monetary and fiscal policies has sparked worries among investors regarding currency risks and capital preservation which benefited gold.

In retrospect, from what we have seen during the first half of this year, we think that the gold price in the next few months will be firmly influenced by how fast the economy is recovering from the pandemic and on the assumption of how the world will deal with new COVID variants. The pace of the economic rebound will influence the demand for gold.

Following gold’s June pullback, the yellow metal offers an interesting entry point for buyers. And it has been reflected in the gold options market which shows interesting dynamics in favour of a trend reversal. The correction in late June pushed the relative strength index considerably down, even flirting with the oversold territory below the 30-level threshold on the daily chart. While some market participants may remain concerned about gold’s downside risks, many technical indicators are signalling an entry opportunity in which some early traders and investors are progressively building their strategic positions around the consolidation area of US$1,700 and US$1,825/oz.


Source: Tradingview.com

The appreciation of gold depends on the economic growth which is supportive of the jewellery and the technology sector. On the other hand, market downturn and economic uncertainty also benefit gold as the yellow metal is considered a safe haven. Gold is also attractive in relation to interest rates and currency strength. In this circumstance, we anticipate that in the medium to long-term, market participants will continue to push the gold price higher as demand will soar due to the need for efficient risk hedges. Gold will also be positively influenced by the trend of interest rates and the return to sustainable economic growth.

Newcrest Q4 Results Beat Guidance

For a deep dive into all of Newcrest Mining’s assets, production volumes, and profitability, members can view our initial report on the company by clicking here.

During the latest quarter, ended June 30th, 2021, Newcrest Mining delivered another stellar performance. The overall gold production was 6% higher than the prior period driven by a strong performance from Cadia and Telfer. Lihir’s gold production was 4% lower in the quarter due to unplanned downtime in the autoclaves, lower head grade and recovery rates, and the overrun of the planned March 2021 shutdown.

Newcrest’s AISC for the June 2021 quarter of $797/oz was $96/oz lower than the prior period, reflecting the benefit of higher copper sales volumes at Cadia, Telfer and Red Chris, a higher realised copper price and higher gold sales volumes at Telfer and Cadia. These benefits were partially offset by the associated increase in treatment, refining and transportation costs and royalties.

Newcrest not only achieved its production guidance, but also exceeded it for the full year FY21. The company also made headway, advancing multiple organic growth options:

  • Exploration decline development works progressing well at Red Chris and Havieron
  • Cadia Molybdenum Plant first production is expected by the end of September 2021
  • Lihir Phase 14A Pre-Feasibility Study expected to be released by the end of September 2021
  • Cadia PC1-2 Pre-Feasibility Study expected to be released by the end of September 2021
  • Red Chris Pre-Feasibility Study expected to be released by the end of September 2021
  • Havieron Pre-Feasibility Study expected to be released in the second half of CY21

Table Description automatically generated
Source: NCM

Cadia achieved record annualised mined ore volumes from Cadia East of 38.1mtpa and a record annualised mill throughput rate of 34.3mtpa in the June 2021 quarter. Cadia achieved record annualised mined ore volumes from Cadia East of 38.1mtpa and a record annualised mill throughput rate of 34.3mtpa in the June 2021 quarter. Newcrest is on track to complete commissioning of the Molybdenum Plant (Moly Plant) and expects to achieve first production by the end of September 2021. The Moly Plant is expected to deliver an additional revenue stream for Cadia in the form of a molybdenum concentrate which will be recognised as a by-product credit to AISC. Bottom line is that Cadia is performing exceptionally with record results and Newcrest is not resting on its laurels here. The firm continues to grow organically, and it is on course with its plans.

Development Pipeline

Newcrest is not all about Cadia, Lihir, and Telfer. The company has projects in development, and they also continue to explore for new gold tenements. We touched on Red Chris and Haverion in our earlier reports and there has been progress made across both projects.

Red Chris is home to gold and copper deposits and is located in Canada. At Red Chris, drilling continues to expand the higher grade mineralisation intersected at East Ridge, with the new discovery adjacent to the East Zone returning the highest grade intercept to date (at East Ridge), supporting the potential for resource growth. East Ridge is located outside of Newcrest’s Red Chris initial Mineral Resource estimate. Mineralisation remains open in all directions and drilling to define the extent is ongoing. In FY2020, Red Chris’s metrics were Production of 39koz of Gold, and Production of 25kt of copper. Currently, Newcrest is implementing a two stage transformation strategy to unlock the potential of Red Chris.

The Havieron Project is operated by Newcrest under a Joint Venture Agreement with Greatland Gold. The Havieron Project is centred on a deep magnetic anomaly located 45km east of Telfer in the Paterson Province. The deposit is overlain by more than 420m of post mineral Permian cover. Drilling activities from 29 drill holes resulted in 25,418m of drilling completed since 31 March 2021. Results from 14 of 29 holes drilled have been received, with 9 holes returning significant assay intercepts in excess of 50 gram metres Au. Drilling in Q4 was designed to support potential resource growth at the South East Crescent, Northern Breccia and Eastern Breccia. There is good evidence of a strong development pipeline here and organic growth potential remains robust.

Technical Analysis

Chart Description automatically generated with medium confidence

Trend

NCM experienced a massive sell-off in August last year since its last attempt to reach the previous top, dating back from August 2019, before heading down by more than 39% and finding its floor on the 5th of March this year. NCM has been in a rollercoaster for quite some time now as shown by the formation of a multi-year double top at an average price of $38.5 per share. Since early March this year, NCM rebounded tremendously and even tried to break the $30 level, however without succeeding. NCM exhibited some short-term difficulties to break its 50% retracement from the last swing high that occurred between March-2021 and Mid-May-2021. However, the price action appears to find relative support at the 61.8% Fibonacci level at $26.18 per share. With a declining volume since the last 200 days, NCM remains under selling pressure as attested by the descending trend line that limits NCM upside potential in the near term. On a positive note, the formation of a diversion between the RSI indicator and NCM’s price action may suggest an imminent trend reversal. This is also confirmed by NCM getting closer to the key level of $25.16 which may attract buyers who may be interested to build their long-term strategic positions.

Key price levels

The key price to watch in our view is the 61.8% Fibonacci retracement from the last swing high. We think that it is highly probable that NCM will consolidate between the $24.5 – $26 price range before attempting a rebound and challenge once more mid-May high. On the other hand, If the $25 level cannot be held, we believe NCM might form a double bottom with $24 per share as the next floor.

Volume and momentum

Volume slightly decreases since the last 200-day with the 20-day volume average down by -22.8%. The price action remains neutral in the near term, evolving in a range between $25.16 and $27 per share.

Trade consideration

  • Market participants might be interested to enter the key support level of $25 per share.
  • Primary target price above $30 per share
  • Secondary target price at $33.3 per share
  • It is recommended exiting the trade below $24 per share

Chart, histogram Description automatically generated

Recommendation

Gold will be positively influenced by the trend of interest rates and the return to sustainable economic growth in 2022 and beyond. Newcrest’s existing assets are performing efficiently and at full capacity. Organic growth pipeline is strong with a string of projects and the potential of M&As is always there. Our estimates for Newcrest’s financial performance from our earlier report remain unchanged and we continue to retain a “Buy” recommendation on Newcrest as it is a good time to gain exposure for long-term investors.

 

Scroll to Top

Login

By submitting this form, I agree to the TERMS AND CONDITIONS and PRIVATE POLICY