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Newcrest Mining Ltd: FY20 result in line with expectations

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

Newcrest Mining Ltd (ASX: NCM) is the largest gold producer listed on the ASX and one of the world’s largest gold mining companies. Newcrest has five current mining operations, namely the Cadia operation in NSW, Australia, the Telfer operation in WA, Australia, the Lihir operation in Aniolam Island, PNG, the Gosowong operation in Halmahera Island, Indonesia, and the Red Chris operation in British Columbia, Canada. Newcrest’s market capitalisation is A$28 billion.




What are the key features of Newcrest’s FY20 results?

Newcrest’s underlying net profit after tax increased 34% to a record US$750 million (FY19: US$561 million). Total revenue for FY20 increased by 5% to US$3,922 million (FY19: US$3,742 million). Gold revenue increased by 2%, with the higher achieved gold price of US$1530/oz (up 21% on FY19) almost fully offset by a fall in gold production for FY20 to 2.2 million ounces (FY19: 2.5 million ounces). Gold production at Cadia fell 8% (lower grade), Lihir fell 17% (lower grade and recovery) and Telfer fell 17% (lower recovery and ore milled). Copper revenue increased by 20% in FY20, with copper production rising by 30% partly offset by an 8% fall in the copper price. Newcrest reported All-In Sustaining Costs (AISC) of US$862 per ounce in FY20, up 17% on FY19.

Newcrest will pay a final fully franked dividend of US17.5 cents which is 21% higher on FY19.

What is the outlook for Newcrest?

Newcrest is forecasting FY21 gold production of 1.95–2.15 million ounces (FY20: 2.2 ounces). The fall in production in FY21 relative to FY20 is primarily due to lower gold production at Cadia. Newcrest’s total capital expenditure for FY21 is estimated at US$1.0 to US$1.2 billion. This includes spending between US$590 million to US$680 million on major capital works mainly at Cadia.

Looking longer term, gold production at Cadia is forecast to increase from around 0.7 million ounces in FY21 to 1.25 million ounces in FY25. The Red Chris mine in Canada is also expected to materially increase gold production in coming years although Newcrest has not provided any long term forecasts.

What is the market reaction?

The market reaction to Newcrest’s announcement today is neutral. Newcrest is currently at around $34.20 (14 August 2020). Newcrest forward P/E is in the high twenties, with an annual dividend yield of around 1%.



This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
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