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Date : 25/08/2021

Newcrest Mining

ASX :

NCM

Market Cap : $20.43 Billion

Dividend Per Share : $0.551

Dividend Yield : 2.93 %

Buy

52 Week Range : $23.08 - $33.92

Share Price : $25.39

Dividend boosts underpinned by high profitability metrics. We recommend a "Buy".

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. 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.

In Newcrest’s FY21 results, the firm achieved gold production of 2.3 million ounces, slightly down on FY20’s levels, and record copper production of 142,700 tonnes. Higher gold and copper prices supported 17% revenue growth over the prior year to hit US$4.6 billion, with copper representing around 22% of net revenue in FY21. The company’s all-in sustaining cost (AISC) came in at $911/oz, delivering a record AISC margin of 49% or $876/oz.

Newcrest’s cash flow is also booming, generating a record annual $1.1 billion of free cash flow throughout the year. Record mine and mill performance at Cadia, underpinning record copper production and its lowest reported annual AISC of negative $109/oz. This ensured Newcrest’s bottom line benefitted massively, delivering a statutory net profit after tax (NPAT) of $1.2 billion, up 83% on the prior year. On an underlying basis, NPAT still grew at an impressive clip, up 55%.

Newcrest’s balance sheet is positioned for growth with a Net cash position of $176 million as at 30 June 2021. The firm has significant liquidity with $3.9 billion in cash and committed undrawn bank facilities and their next corporate bond debt repayment is not due until May 2030. This gives Newcrest a lot of room to invest and grow.

Speaking of growth, Newcrest is advancing multiple organic growth options. Exploration and development works are progressing well at Red Chris and Havieron, and first production from Cadia Molybdenum Plant is expected by the end of September 2021.

The strong cash flows yielded the sixth consecutive year of increased dividends for Newcrest shareholders. Newcrest announced a fully franked final dividend of US$0.40 a share or $0.551 in Australian Dollar terms, which is 129% higher than pcp. This totals a record year in terms of dividends for FY21 – with US$0.55 a share. The full-year dividend equates to a 41% payout of FY21 free cash flow and puts Newcrest shares on a dividend yield of nearly 3%.

Outlook

Newcrest providend a comprehensive table for their guidance expectations for FY22. It’s important to note here that the guidance layed out is assuming that there are no Covid19 related interruptions. The company is guiding for total gold production between 1.8 million and 2 million ounces, and copper production between 125,000 and 130,000 tonnes. AISC, which includes production stripping and sustaining capital, is expected to land in the range of $1.7 billion to $1.9 billion.

These numbers mean that FY22 earnings are projected to contract by 15% given the lower production volume and a slightly higher cost of production. FY21 was a ridiculously good year for gold miners given the buoyant gold prices which led to increased profitability. In the short-term, gold prices will continue its sideways trajectory given that markets are extremely fickle minded when it comes to growth and inflation considerations. In the long-term however, there is plenty of support for positive gold price trajectories as we expect demand to increase.

Newcrest’s upcoming projects are also going ahead in their development. Western Australia’s Havieron, Canada’s Red Chris and Papua New Guinea’s Wafi-Golpu are all good projects with excellent metrics – leading to a robust long-term outlook for the firm.

Our earlier report on Newcrest can be viewed by clicking here.

Verdict

Newcrest Mining has delivered another robust result and it now comes with a 2.93% dividend yield after yet another dividend upgrade. Given the sentiment towards gold in the short-term, Newcrest shares are yet to find a positive momentum, however, with their strength in production volumes, upcoming projects that are in the pipeline, and the long-term bullish sentiment towards gold prices, we continue to recommend a “Buy” for Newcrest Mining, Australia’s largest gold producer.

 

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