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.

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Newcrest Mining (ASX:NCM) is the biggest Australian gold producer on the share market, with mining and exploration projects in Australia, Papua New Guinea (PNG), Indonesia and the US.

Gold remains in high demand due to a volatile US dollar and economic uncertainty, and as a result NCM has been one of the best stocks in the past few months.

Today, NCM reported a 63% surge in FY11 net profit to $908 million, driven mainly by surging gold prices and the production jump from its Lihir acquisition.

A final unfranked dividend of 20 cents was declared, in addition to a special unfranked dividend of 20 cents.

Underlying profit was up 36% on-year to $1.06 billion, coming in slightly ahead of analyst estimates.

NCM grew its FY11 output 43% to 2.5 million ounces of gold, and forecast FY12 production of 2.775 million – 2.925 million ounces.

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Newcrest Mining (ASX:NCM) is Australia’s largest gold producer, with mining and exploration projects in Australia, Papua New Guinea (PNG), Indonesia and the US. The miner also has a smaller exposure to copper, mostly as a by-product of its gold production.

Importantly, NCM is working on bringing a few massive projects on stream. It already has six operating mines and five significant development projects.

NCM achieved its first gold production at its Hidden Valley gold mine in PNG, and delivered initial production ore at Ridgeway Deeps, a resource below its Ridgeway mine in central New South Wales.

In contrast to most miners, NCM mostly focuses on exploration-led production increases rather than acquisitions.

However, NCM reversed this trend when it decided to takeover Lihir Gold (LGL).

Newcrest Mining this week downgraded its production guidance for FY11 as a result of a production interruption at its Lihir mine and minor production delays at other sites.

Australia’s biggest gold miner is now expecting to produce 2.7 million ounces of gold this year, down approximately 3.5% from its previous guidance of 2.75 – 2.85 million ounces.

NCM should continue to receive support from surging gold prices.

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Newcrest Mining (ASX:NCM) is Australia’s largest gold producer, with mining and exploration projects in Australia, Papua New Guinea (PNG), Indonesia and the US. The miner also has a smaller exposure to copper, mostly as a by-product of its gold production.

The company is also considered among the market’s blue chip stocks by virtue of its size and performance.  Furthermore, due to its leverage to rising gold prices, NCM has been one of the hot stocks over the past month.

NCM reported its latest quarterly production numbers yesterday.  The results showed a 16% decline in gold output from the previous quarter.

Gold output was hit by wet weather events in eastern Australia, low rainfall which hurt production at Lihir, and civil unrest in the Ivory Coast leading to the suspension of operations at Bonriko.

As a result, NCM said cash costs for the quarter rose from $440 to $497 per ounce.  Newcrest Mining also downgraded full year gold production guidance to 2.82 million ounces (plus or minus 35,000 ounces).

This compares to previous guidance of between 2.85 million and 2.95 million ounces.

Copper production guidance was left unchanged at 75,000 – 80,000 tonnes, with cash cost guidance also remaining the same.

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Newcrest Mining (NCM) is Australia’s largest gold producer, with mining and exploration projects in Australia, Papua New Guinea (PNG), Indonesia and the US.  NCM is the largest gold producer listed on the Australian share market.

The miner also has a smaller exposure to copper, mostly as a by-product of its gold production.

In its latest production report, NCM announced a 7% increase in gold output in the 2Q11 from a quarter earlier. Copper production of 17.712t was in line with the previous quarter.

NCM attributed the growth in output to higher gold grades and increased throughput.  Cash costs of $440 per ounce were also an improvement over the previous quarter.

However, NCM downgraded FY11 gold production guidance to 2.85 – 2.95 million, from 2.85 – 3.00 million ounces.

Copper output was also expected to fall to 75 – 80 thousand tonnes, from 80 – 86 thousand tonnes.  NCM attributed the downgrades to rain and a suspension of operations at Bonriko in the Ivory Coast.

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