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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Woodside Petroleum is Australia’s leading oil and gas exploration company, and is 24% owned by global energy giant Shell Australia.

The company sells natual gas, liquefied natural gas (LNG), crude oil, condensate and liquid petroleum gas (LPG) globally. WPL is considered one the markets blue chip shares.

WPL produces the equivalent of around 65 million barrels of oil a year, much of it from the lucrative North-West Shelf area off the WA coast – the largest LNG field in the country.

The company has significant growth prospects through its Pluto, Browse and Sunrise projects.

Last week Woodside provided an update on its Pluto project, revealing a delay and cost blowout at Pluto.

The shock six-month delay and additional $900 million cost overrun to $14.9 billion for the project saw WPL get smashed.

This pushes gas shipments to Japan from September this year to March 2012.

WPL says the delay has been caused by seven weeks of bad weather and slower than expected progress on the commissioning of the onshore LNG plant.

WPL shares finished Friday’s session down 3.8%.

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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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Medusa Mining (MML) is an Australian-based gold and copper miner, focused solely on operating in the Philippines.

MML’s assets include the high grade, underground, narrow vein Co-O Gold Mine and the Lingig copper prospect.

The miner has a 5-year, 2-phase growth path to production of 400,000 ounces per year underpinned by strong cash flow from the Co-O Mine.

With total current resources of over 2 million ounces (oz) of gold, Medusa Mining is in prime position to become a prominent gold producer.

The group is impressively debt-free and un-hedged, with long-term cash costs slated for around US$200 per ounce but currently sitting comfortably below this level.

The company is also looking robust at present on an encouraging environment for gold, which has continued to linger around all-time highs.

Key upside drivers

MML’s board recently approved construction of a new Co-O plant with capacity to produce 200,000 oz per year.

Surface drilling results from the Co-O have already yielded an exceptionally wide and high grade zone.

Elsewhere in MML’s large tenement holding, work is progressing on a number of prospects, including the Bananghilig deposit.

A pipeline of deposits is now being established within the Bananghilig Deposit (650,000 ounces at 1.3 g/t gold), and planning is now underway to commence a pre-feasibility study drilling campaign in July this year.

MML’s projects have excellent exploration upside, with high grade vein and disseminated bulk gold targets, plus six porphyry copper targets.

Its current exploration budget for FY11 is US$21 million.

Revised production for FY11 of 102,000 oz at cash costs of US$190 per oz would see MML become an extremely profitable miner.

Gold price rally

We expect gold and silver prices to remain strong, as many investors seek to hedge the market with precious metals such as silver and gold.

Gold is currently at record highs with the trend likely to continue in the short to medium term.  In fact, MML has been one of the hot stocks since August last year on surging bullion prices.

Key upside drivers for the gold price include inflation fears and US dollar weakness.

Gold is now well above US$1450 and looks poised for further gains.

First half joy

MML recently reported a record first half profit.

EBITDA was up 101% to $63.3 million (from $31.5 million) on year. EPS nearly doubled to $0.31 based on a NPAT of US$58.1 million.

Revenues increased 90% to a record US$78.3 million, due to increased gold production and a higher price received on sale of gold.

Following the solid result, MML paid a maiden un-franked dividend of 5 cents on 8 November.

The unhedged gold miner achieved an average gold price of US$1,291 per oz.

Cash costs were marginally lower at US$186 per oz than the previous corresponding period’s costs of US$189 per oz.

This is considerably lower than Australian based miners like NCM and OZL which have cash costs $400+ per oz.

Looking ahead

The Philippines presents a reasonably safe mining environment with plenty of government support.

The region has an excellent mineralized structural framework with world class gold-copper deposits.

There has been an abundance of discoveries in the area.

MML has huge potential for long mine life at the Co-O Mine with a conceptual exploration target size of 3 to 7 million oz.

The miner has a good history of production upgrades which presents significant upside, so it will be one of the stocks to watch in coming months.

In a sign of balance sheet health, MML advised that it is debt free. With money in the bank and solid cash generation, the company can afford to ramp up production organically, or perhaps through an acquisition.

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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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BHP Billiton (BHP) is the world’s largest diversified resources company and a major player in the commodities market. It is currently Australia’s heaviest weighted stocks in the share market with a market capitalization of $125 billion.

The government and the big miners have agreed to amend the resources super profits tax, delivering a major victory for BHP Billiton (BHP) and Rio Tinto (RIO).

Under the new tax regime, the headline rate will fall from 40% to 30% and will only apply to iron ore and coal.

The rate at which the tax kicks jumps from around 6% to 13%, and all oil, gas and coal seam methane projects will now fall under the existing PRRT regime, which levies projects at 40%.

Some of the other major mining players like Newcrest Mining (NCM) wouldn’t be affected by the tax given their large concentration in other commodities.

In return, the government advised that the company tax rate will now fall to 29% instead of the 28% originally proposed, and it will scrap the exploration rebate.

BHP shares have been slumping since late June and last closed at $37.09 a share.

Stock of the Week – Newcrest Mining (NCM)

Newcrest Mining (NCM) is Australia’s largest gold producer, a blue chip stock 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.

Currently, we have a hold stock analysis recommendation on NCM given its leveraged exposure to gold and the uncertainty regarding the Australian Resource Super Profits Tax.

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 has reversed this trend with the latest news of a takeover of Lihir Gold (LGL). The market is excited about the merger, which will boost NCM’s long-term value at a time when gold is looking at record highs and a strong future.

High Time for Gold

While base metals suffered over the global economic downturn, one metal to emerge from the metals slump looking strong has been gold, which demonstrated amazing strength in 2009-10.

The precious metal remains in high demand due to a volatile US dollar and economic uncertainty.

Such uncertainty includes fears of euro-region economic troubles, which has dominated global economic sentiment of late.

These fears have driven investors to gold as a safety investment. With the precious metal still safely above US$1,200 per ounce, it seems likely that investors will continue to turn to gold as a refuge from Euro-region risk.

Last night’s international session confirmed that gold is looking robust, with the precious metal hitting a record high of US$1,252.80 per ounce during the session.

Most forecasts are pointing towards further gains in the gold price, which is a positive for NCM going ahead.

Takeover Triumph

On 1 April, it was no fool’s joke when LGL rejected a $9.2 billion takeover offer from Newcrest Mining (NCM).

The offer, which valued LGL at $3.87 per share, was rejected by LGL management because it did not include a sufficient control premium.

Despite the bid representing an almost 30% premium its previous closing price, LGL’s chairman argued it did not fully capture the significant growth potential of the company’s three mines.

NCM argued differently, stating that its offer was “full and fair”.  According to NCM management, the deal would deliver $85 million in annual synergies.

However, LGL was to reconsider the offer when, on 20 April, NCM sent a letter to LGL’s chairman, Ross Garnaut, offering to improve the terms the takeover offer.

After canvassing the views of LGL’s shareholders, NCM offered to improve the scrip component of the offer but not the offer price.

On 4 May, LGL accepted Newcrest’s sweetened takeover bid. The revised offer values LGL at $9.5 billion, representing a 6.4% improvement over NCM’s previous bid.

The LGL/NCM tie-up could be a harbinger of further consolidation in the industry, with soaring gold prices putting added pressure on miners to replace existing reserves.

Yesterday, NCM completed the due diligence of LGL and stated that it is satisfied with the outcome of the process.

The two companies have advised that the proposed merger’s timetable has been extended by 1-2 weeks, with its scheduled completion now expected in September.

First Ever Dividend

On 12 February, NCM reported its 1H10 results. Profit for the half gained 14.4% on last year to $176.2 million, whilst underlying profit strengthened 10.3% to $266.6 million.

The underlying profit result was a touch below analysts’ expectations of $270-$281 million.

The market however was impressed by NCM’s decision to pay its first ever half dividend – of 5 cents per share.

Sales revenue for the half fell 8.2% to $1.19 billion whilst capital expenditure sat at $440 million.

Exploration spending for the half was at $51 million and NCM’s gearing remained negligible (up to 3% from 2% a year earlier).

NCM noted a number of growth projects are nearing completion with board approval of the Cadia East project a bonus.

The company also provided an updated resource for its O’Callaghans deposit in Western Australia, where the indicated and inferred tungsten resource has risen 53% to 260,000 metric tonnes while copper has climbed 37.5% to 220,000 tonnes.

Looking Ahead

Going ahead, NCM will work on its Cadia East gold and copper deposit in NSW, which had development approved in April. The site is one of the world’s largest gold deposits, and it will enable NCM to ramp up production in the Cadia Valley to 700-800 koz of gold per year for the next 10 years.

NCM is in a fairly strong place at the moment. The market has welcomed a merger between NCM and Lihir Gold, as the result will be a competitive powerhouse focused on a lucrative commodity: gold.

NCM’s 2007 move to close out its hedge book has proven successful as gold prices have continued to hit record highs this year.

Going ahead, NCM is upbeat on its future, considering the outlook for gold. The only major dark cloud hanging around at present is the impact of the government’s proposed resource tax on the company, which NCM estimates would have a negative impact on net present value of 3%-8%.

NCM recently reported its 1Q10 production numbers. Gold and copper production declined on year, which NCM attributed the drop in production to extended commissioning and slower ramp-up at its Hidden Valley project.

As a result, FY10 gold production guidance is now expected to be at the lower end of 1.81 – 1.91Moz.

Helping to offset the disappointing production numbers, cash costs were largely in line with the previous quarter and are expected to be at the lower end of the guidance range in FY10.

Together, the two will command one of the highest gold production rates in the world and have three cornerstone assets (Cadia, Telfer and Lihir).

Should gold prices continue to accelerate, this merger could be a match made in heaven.

NCM Australian share price has been performing well as of late, gaining 10% since late May 2010 and last closing at $33.86.

4 May 2010

Australian stock Lihir Gold (LGL) is a leading gold producer with operations in Papua New Guinea, Australia and West Africa with a combined gold reserve of 30 million ounces.

In Australian stock news, LGL has accepted Newcrest Mining’s (NCM) sweetened takeover bid.

The revised offer values LGL at A$9.5 billion, representing a 6.4% improvement over NCM’s previous bid.

The part scrip/part cash offer comes with the caveat that LGL be allowed to continue talks with rival bidders, implying that it is currently in such talks.

The LGL/NCM tie-up could be a harbinger of further consolidation in the industry, with soaring gold prices putting added pressure on miners to replace existing reserves.

Australian stock price for LGL saw strong resistance at the $4.00 level and has treaded down ever since. Its last closing price was $3.79.