Newcrest Mining (NCM) is Australia’s largest gold producer and one of the world’s top five gold mining companies by production, reserves, and market cap. NCM’s main operations are in Australia, Indonesia, Papua New Guinea, Fiji and West Africa, and has a global workforce exceeding 19,000.

The company has a portfolio of predominantly low-cost, long-life operating mines, although it also has a history of operations troubles at its key projects (both operational and developmental).

1H13 Results

NCM’s 1H13 results were disappointing on several fronts. Gold production for the half was 953,000 ounces, down 18% on prior corresponding half.

Cash costs increased 8% on same period in FY12. The poor production results led to revenue falling 28% and underlying profit plummeted 48%.

Guidance downgrade

Late last month, the group downgraded its full year production – its fifth downgrade in the last two years. Gold production was lowered from 2.3 to 2.5 million ounces of gold to 2.0 to 2.15 million ounces.

The company cited operational issues at Lihir and Gosowong as the reason for the downgrade. While the downgrade was not a massive shock given the poor 1H results, it is yet more evidence of management inability to forecasts its own production.

Gold Prices

While the groups poor results have contributed to recent share price weakness, it correlation to the gold price has also contributed.

The above shows the gold price (white line) and NCM share price (yellow line) over the last nine month.

As is shown, the fall in the gold price has dragged on NCM’s share price. With fears of monetary easing-induced hyperinflation are abating, other asset classes such as equities are offering relatively stronger returns.

Outlook

NCM’s 1H13 results showed the effects of both poor production and a falling gold price.

Disappointingly, the group last month downgraded its full year guidance. This downgrade was already from what we would consider low-end guidance and while not a complete surprise it does not leave us with much faith its management’s ability to forecast its own production.

With the flight to stronger returning asset classes likely to continue in the near-term, we see continued weakness for the gold price and as a by-product NCM’s share price.

Newcrest was issued as a share to sell to our members on April 11th, if you would like further information you can sign up for FREE share recommendations and access all our research files on not only NCM but all our current trading ideas. Simply click here and starting trading today, free for 7 days.

Kingsgate Consolidated (KCN) is a gold miner, operating in South East Asia, South America and Australia. The company’s major operation is the Chatree Mine in Thailand, and it also has the smaller Challenger Mine in South Australia.

Rising cash costs squeezing margins

In late January, KCN revealed a 13.4% slide in 2Q13 gold output relative to the same period a year earlier. Compared to 1Q13, gold output rose slightly by 4%.

Production was affected by the temporary closure of the Chatree North Expansion Plant (Plant 2) and interruptions at Challenger following the establishment of two new mining fronts.

The biggest disappointment with the result was another rise in the group’s cash costs. Cash costs rose 37% from 1Q13 to US$975/oz. However, compared to 2Q12 costs surged 60%.

KCN attributed the cost squeeze to lower ore grades at Chatree and ore sourced from an area of Chatree’s Pit A that was known to have lower recoveries.

The poor 2Q13 production result contributed to a 76% slide in 1H13 net profit to $8.1 million. Revenue was up 10% on-year, however the growth was driven primarily from stronger gold sales. Weaker output from Challenger and a lower realised average gold selling price detracted from the growth in revenue.

Gold prices trending down

The price of gold has weakened noticeably in recent months. Spot gold is trading around 7% below KCN’s 1H13 average realised selling price of US$1676.

The outlook for the precious metal has declined amid signs of weakening physical demand and diminished prospects for further monetary easing. In an example of waning demand, the US Mint sold 62,000 ounces of American Eagle gold coins last month.

This was much lower than the sale of 80,500 ounces in February and 150,000 ounces in January. Holdings in gold-backed exchange-traded funds are also 6.9% weaker in the year-to-date.

Furthermore, with the world economy stabilising, central banks like the US Federal Reserve are less inclined to implement additional monetary easing measures.

In our view these are among the key factors that will handicap gold prices, and by extension, KCN’s revenue growth.

Outlook

KCN stuck to its FY13 gold production guidance of between 200,000 and 220,000 ounces. 1H13 production totalled 90,413 ounces, meaning KCN is relying on stronger 2H13 output numbers in order to meet its guidance. Although Chatree’s Plant 2 is now back online, development at Challenger is expected to continue.

Also, the limited availability of stoping areas at Challenger the company highlighted in its 2Q13 production report indicates difficulties accessing the ore body being mined. Therefore we don’t share KCN’s optimism that full year production guidance will be met.

Moreover, the upward trend in its cash costs is coming at a time when gold prices have been retreating. This is creating pressure on cash margins and will ultimately translate into poor earnings in our view.

Transpacific was issued as a share to sell to our members on April 3rd, if you would like further information you can sign up for FREE share recommendations and access all our research files on not only KCN but all our current trading ideas. Simply click here and starting trading today, free for 7 days.

Forge Group Limited (FGE) identified as a share to buy is a multidisciplinary Engineering, Procurement, and Construction (EPC) service provider. The group, with over 1,700 employees delivers end-to-end EPC turnkey solutions to the power and infrastructure, minerals and resources, and oil and gas sectors in Australasia and Africa.

FGE services some of Australia’s and the world’s most reputable mining and energy companies such as BHP Billiton, Rio Tinto, Fortescue Metals Group, Woodside, Chevron, MCC and AngloGold Ashanti.

The group has four divisions, branded as follows:

 
1H13 Results

FGE’s results for the first half of the financial year were impressive. Revenue was $502.9 million for 1H13, up a staggering 123% when compared to the prior corresponding period.

Net profit for the half was $49 million, a massive 60% increase on the 1H12. Much of the above was helped by the acquisition of Forge Group Power (formerly CTEC), which it acquired in early 2012 for $38.6 million.

FGE balance sheet is also in a very healthy position, with a net cash position of $161.9 million at the 31 December 2012, up from $81.8 million at the same time in 2011.

Cash flow from operations was very solid, almost tripling to $79 million from $28 in 1H12. The group also increased its interim dividend by 60% to 10 cents a share.

Growth driven by Power

The above shows steady revenue growth up until the 2H12, after that revenue exploded due to the acquisition of Forge Group Power (formerly CTEC). As of 23 January 2013, the group had an order book of $1.04 billion, $462 million of which was secured in the December half.

The order book includes such projects as: power stations for mining giants Rio Tinto and BHP; an ore processing facility for Fortescue Metals; and Navy Fleet Maintenance for the Australian Navy.

Outlook

FGE’s 1H13 results were spectacular and its outlook appears to be promising, with a range of projects on the go. The company’s should be able to continue leverage its current relationships with mining majors BHP, Rio Tinto and Fortescue into new contracts in the future.

Interestingly 82% of the new contacts secured in the 1H13 were for the power division, which we see as a good move. While many other mining service contractors are fighting over the more common capital expenditure projects, FGE has recently been positioning itself in the less competitive power solution business.

We believe that groups position as a power provided coupled with its strong balance sheet will continue to see the company growth its earnings and as a by-product its share price.

The Forge Group was issued as a share to buy to our members on March 6th, if you would like further information you can sign up for FREE share recommendations and access all our research files on not only WDC but all our current trading ideas. Simply click here and starting trading today, free for 7 days.

Perseus Mining (PRU) is a gold explorer and producer, focused on under-explored gold belts in West Africa. The group’s main assets are located in Ghana and the Ivory Coast, consisting of the Edikan Gold Mine (EGM), the Tengrela Gold project (TGP) and the Grumesa Gold Project (GGP).

The Edikan Gold Mine in Ghana has 5.6Moz of Measured and Indicated gold resources, including reserves of 3.4 million ounces of gold, and 1.7Moz Inferred gold resources. Production began at the mine in the 3rd Quarter of 2011.

The Sissingue Gold Project which is part of the Tengrela Gold Project. It is the group’s most advance non-producing project.

Quarterly Production

As mentioned, EGM has been producing gold since the third quarter of 2011.  Since the initial ramp of production PRU has reported four quarters worth of production numbers.

The first two quarters were within guidance, however the last two set of figures released have missed. The December 2012 quarterly production result was the more disappointing of the two misses.

Gold production over the quarter was 51,090 ounces, 13% below the lowered guidance provided in November and also below the previous quarter’s production of 52,610 ounces.

Cash costs for the December quarter was $588 per ounce, 2.3% higher than the revised guidance and much higher than the $475 per ounce in the September quarter. The group blamed the production short-fall principally on lower crusher output since its initial downgrade on 23 November 2012.

The Sissingue Gold Project

The Sissingue Gold Project located in the Ivory Coast is the project PRU is planning on getting to production. The group is targeting a mid-2014 commissioning date, but given its 12-month build time from the start of construction we see this timeframe as unrealistic.  PRU still needs to:

 
Finally PRU will need to approve development of the project, which it has put on hold pending clarity of the some of the aforementioned tasks.

Outlook

PRU has missed two quarterly production results in a row. The production issue of late is relating to a mechanical issue to do with the drive shaft for the crusher, which has results in poor mill utilisation.

The drive shaft is scheduled to be replaced in February, but given the downtime that will be required for the replacing and testing of the new shaft we can’t see the group meeting its previous guidance range of between 127,000 to 143,000 ounces.

PRU offers long-term value at these levels, but until the company can stick to its guidance we have too many short-term concerns.

This article was distributed to our members on February 8th, if you would like further information you can sign up for FREE 7day recommendations and access all our research files on not only PRU but all our current trading ideas. Simply click here and starting trading today.

OneSteel Ltd (OST) is an Australian manufacturer of steel and finished steel products and a leading metal distributor which is listed on the Australian Stock Exchange.

OST, which was spun out of BHP in October 2000, markets products used in the construction, manufacturing, housing, mining and agricultural industries.

OneSteel announced a 1H FY12 net loss of $74 million, swinging from a $116 million profit a year earlier.

The results were marred by a $130 million writedown on the groups LiteSteel business in the Australia and the US.

The group said that it expects sales of approximately two million tonnes in 2013, after its Peculiar Knob project begins operations in the December quarter of this year.

The company declared an interim dividend of $0.03 a share, unfranked.

Click to Receive FREE Daily Trading Recommendations!

Mining Shares News: BlueScope Steel (BSL) announced a 1H FY12 loss of $530 million

BlueScope Steel Ltd (BSL) is a major steel company in Australia and New Zealand, supplying flat steel products to the building, construction, manufacturing, automotive and packaging industries.

BlueScope Steel announced a 1H FY12 loss of $530 million, widening sharply from the $55 million loss from same period a year earlier. The result was worse than analysts expected.

The company said that a majority of its loss was made of two main costs; the restructuring of the business cost $260 million, while there was an impairment charge of $184 million on its Australian assets.

BlueScope said that trading conditions were improving, with the U.S. economy showing signs of recovery, but that its performance was not translating due to the high Australian dollar

Click to Receive FREE Daily Trading Recommendations!

Mirabela Nickel (ASX:MBN) is a mining company focused on the production and sale of nickel concentrate.

The miner’s key asset is the Santa Rita nickel operation in Bahia, Brazil.

MBN achieved its production ramp up goals in 2011, successfully upgrading the Santa Rita’s plant capacity to 7.2Mtpa of ore milled, from 4.6Mtpa in 2010.

However the ramp up was also accompanied by rising cash costs, which detracted significantly from an otherwise solid set of December 2011 quarter production numbers.

Costly cash

Mirabela Nickel announced its December quarter production report today.

Nickel output climbed 9% from the previous quarter, helping MBN to meet its 2011 production target of 15,854 tonnes.

However the production numbers were overshadowed by a disappointing rise in cash costs.

Cash costs jumped 11% on the quarter to US$7.42, as the higher output was accompanied by higher plant costs and lower productivity.

Additionally, mining costs rose amid increased expenses relating to drilling activity.

The ramp up in quarterly production was thus poorly executed due to the company’s own efficiencies as well as industry cost pressures.

Risk on

Another concerning aspect of the production release was the almost 50% fall in MBN’s cash holdings from the prior quarter.

A significant part of that outflow was due to the closing out of the company’s nickel and copper hedges.

The lower cash balance in addition to a new US$50 million debt facility entered into by a Brazilian subsidiary, raises MBN’s risk profile in a period of economic uncertainty.

Outlook

MBN has raised its 2012 production guidance, targeting 20,000 – 22,000 tonnes of nickel output.

As mentioned, however, greater output is not necessarily a good thing when it is accompanied by higher cash costs.

Mirabela Nickel has commenced a cost reduction program, which aims to lower cash costs towards US$6/lb by the end of the year. However that is largely dependent on the proper implementation of the program.

Although a return to steady state production may help, cost reductions will also be linked to the favourable renegotiation of MBN’s major contracts.

Having recently closed out of its nickel hedges, MBN is now fully exposed to the movement in commodity prices.

Unfortunately, there is also considerable uncertainty surrounding nickel prices, with brokers Morgan Stanley and Goldman Sachs recently downgrading their forecasts amid concerns about oversupply.

We at Australian Stock Report believe these headwinds are likely to weigh on MBN’s share price for a while yet.

Click to Receive FREE Daily Trading Recommendations!

BHP Billiton (ASX:BHP) is an international resources company.  The Company’s principal business lines are mineral exploration and production, including coal, iron ore, gold, titanium, ferroalloys, nickel and copper concentrate, as well as petroleum exploration, production, and refining.

Blue chip stock BHP, today announced that its latest quarterly iron ore output increased 22% in the December quarter compared to the previous quarter.

BHP’s operations in Western Australia’s Pilbara region recorded record production on an annualized basis, as the company expanded its infrastructure base in the area.

The Melbourne based company said that it expects full-year production to marginally exceed prior guidance of 159 million tons per annum.

Click to Receive FREE Trading Recommendations!

Kagara (ASX:KZL) is a copper, zinc-lead and nickel miner, with operations in North Queensland and WA. It has four operational hubs in North Queensland – Mungana, Mt. Garnet, Balcooma and Thalanga.

KZL’s North Queensland mines supply ore to three treatment facilities in Mt. Garnet (copper and polymetallic) and Thalanga (polymetallic).

A strategic review determined KZL’s nickel operations at Lounge Lizard, WA to be non-core, and so the group has put the assets up for sale.

The company faced major operational issues in FY11, which culminated in a $32.2 million loss.

An uncertain outlook for commodities has come at a poor time for Kagara, with its recently announced capital raising highlighting potential cash problems at the company.

Although KZL recently unveiled a five year turnaround strategy, we feel there are significant near-term headwinds that are likely to keep its share price under pressure.

Operational issues

KZL’s September quarter activities report revealed a 3% fall in copper output from the June quarter. However that was balanced by a 13% rise in zinc output.

Cash costs for both commodities fell on the quarter, reflecting the company’s focus on protecting its margins in the face of declining prices.

The quarterly output result followed a hugely disappointing FY11, which was characterised by a $32.2 million loss (compared to a $3.2 million profit in FY10).

The loss came on the back of a $48.5 million write-down of KZL’s Mt. Garnet and Mungana mines (Mungana Mines: MUX is 61.9% owned by KZL).

Production over the year was impacted by a prolonged wet season.  This was accompanied by rising cash costs over the year, which came about due to lower zinc output and adverse FX movements.

Uncertain commodities outlook

Europe’s debt crisis coupled with signs of a slowdown in Chinese economic activity has clouded the outlook for KZL’s key commodities – copper and zinc.

Copper has slumped around 17% from the highs it created in July, whilst zinc has suffered similar falls amid persistent concerns about global oversupply.

Copper is usually seen as an economic barometer, and its recent weakness suggests diminishing prospects for global growth.

Although longer-term we expect stronger demand for the red metal, we see more weakness in the near-term as Europe struggles to end its debt crisis.

Cap raising highlights problems

Kagara’s problems ultimately led to a $25 million capital raising (completed today), which it said was to finalise the acquisition of the Einasleigh Copper Deposit at Mt. Garnet.

Einasleigh was bought from Copper Strike (CSE) for $16 million, as part of KZL’s push to ramp up production in the next five years.

The announcement of the raising was surprising considering it came less than three months after KZL unveiled its five year turnaround strategy.

The capital raising suggests KZL is facing cash problems, with the group in a precarious position as it looks to significantly increase exploration activities in North Queensland.

Worryingly, this leaves KZL vulnerable to continued declines in copper prices and any unforseen production delays.

Outlook

KZL has been hit hard in recent times due to operational issues at its mines.  A prolonged wet season led to production delays and write-downs at Mt. Garnet and Mungana, which was reflected in a massive loss for FY11.

Although KZL is to embark on a five year turnaround strategy, it has set itself lofty exploration and production goals. The group aims to produce 30,000tpa of copper by FY15 (FY11: 22,530t) and 71,000tpa of zinc by FY14 (FY11: 40,125t).

KZL’s immediate focus, however, is on ensuring it has enough cash to cover near-term development expenses.

The recently completed capital raising is a worrying sign, and suggests KZL has little room for error in a very uncertain global economy.

A worsening of Europe’s debt crisis could see copper prices come under further selling pressure, thus impacting KZL’s margins.

As a result, we feel there is further near-term weakness in store for KZL’s share price.

KZL’s woes have seen it being a major mover on the ASX, it has plummet more than 60% in 2011.

Click to Learn more with FREE Recommendations.

Saracen Mineral Holdings Ltd (ASX:SAR) is an Australian mid-tier gold producer based in WA.

The company bought its major assets off Sons of Gwalia back in 2006 – when the latter went bankrupt – and has done well to develop the assets and move from an explorer to a producer.

SAR’s key assets are located in the South Laverton mining district, 120km North-East of famed gold mining town Kalgoorlie, in Western Australia. This includes around 200 granted tenements and applications pending spread over 2,500 square kilometres.

Since purchasing these assets, SAR has spent money exploring the tenements and developing the projects to production.

The company completed a Definitive Feasibility Study on the South Laverton gold project in December 2008 and started producing gold in early 2010.

Ramping up

Having started production in April last year, SAR has achieved strong production quite quickly and established itself as an enticing small producer.

The company produced 111,163 ounces of gold in FY11, its first full year of production, at an average cash cost of $738 an ounce.

SAR has forecast production of around 125,000 ounces in FY12 at costs of around $700-$750 an ounce. So far FY12 is off to a solid start, with the company recently releasing its September quarter Activities Statement. Production of 31,790 ounces at cash cost of $730 was right in light with guidance.

By de-watering some of its flooded pits, SAR hopes to ramp up production to over 160,000 ounces a year by 2015.  Management has proven to be conservative and reliable so far, offering some reassurance in what is a speculative sector.

Saracen Mineral Holdings has managed significant upgrades to its gold resources and reserves, presently standing at around 3,300,000oz and 880,000oz respectively.  Most of the reserves are open-pit, which allows for easier and cheaper mining.

The sizeable resources and potential underground mining pave the way for a long mine life, while the company has extensive exploration potential to upgrade this further.

The hunt for Red October

SAR’s has planned to spend $35 million on exploration activities in FY12, a sizeable budget given the size of the company.

The company recently completed a placement, raising $50.2 million and helping the company to end the September quarter with $60.3 million in net cash and no debt. A share purchase plan and subsequent placement have raised a further $15 million since.

Together with cash generated from production (almost $10 million last quarter), SAR will not need to raise significant fresh capital to fund this.

Much of SAR’s exploration efforts will be in exploring its Red October project. The company expects to have completed dewatering the pits shortly, to be followed by underground development work.

Previous drilling results have confirmed the continuity of ore body at Red October and further exploration efforts could lead to significant resource upgrades relatively quickly.

Production from Red October is expected to commence in FY12, but potential major exploration success could provide a major share catalyst before then.

Outlook

SAR only started gold production just over 18 months ago but is already generating output of around 125,000 ounces a year.

Incremental production upgrades could come in the next few years, but the significant upside potential comes from the development of its Red October operation.

While SAR offers significant exploration upside, its existing production provides extra protection, and suggests that the market could re-rate the stock and push SAR shares much higher than current levels.

SAR is a defiantly a stock to watch.

For further FREE Trading Recommendations, Click Now!