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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 four current mining operations, namely the Cadia operation in NSW, Australia, the Telfer operation in WA, Australia, the Lihir operation in Niolam Island, PNG and the Red Chris operation in British Columbia, Canada. Newcrest’s market capitalisation is A$21 billion.

 

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What are the key features of Newcrest profit result?

Newcrest reported an underlying profit for FY21 of $US1.2 billion, up 55% from the previous period. Gold production of 2.1 million ounces, down 4% from the previous period. Copper production of 142,000 tonnes, up 4% from the previous period. All-In Sustaining Costs (AISC) of $US911 per ounce.

Newcrest will also pay a final fully franked dividend of US40 cents per share, up 129% from the previous period. This brings the total dividend for FY21 to US55 cents per share, which equals to a 41% payout ratio of FY21 free cash flow. Management noted that the company will target a dividend pay-out ratio of around 30%-60% of free cash flow (consistent with the total dividend for FY21). Newcrest’s balance sheet is sound with a net cash position of A$176 million as of 30 June 2021.

The main driver of this result is the higher-than-average copper prices and higher copper production in the period. Gold prices have trended downwards since its peak in June 2020 but have remained strong around US$1,800 per ounce. This average price level is much higher than previous years (2013 to 2019).

What is the outlook for Newcrest?

Management did provide production guidance for FY22. Gold and copper production is estimated to be 1,800-2,000 koz and 125-130 kt respectively. This production level for gold and copper is slightly lower than FY21. All-In Sustaining Costs in FY22 are expected to be broadly in line with FY21. Total capital expenditure for FY22 is estimated at $US1,460 - $US1,640 million. Given this guidance, gold and copper prices are the main determinant of the short-term outlook for Newcrest.

What is the market reaction to Newcrest?

The market reaction to Newcrest profit result is positive with the share price up around 2.5% to A$25.80 while the market is down by 0.4% (19 August 2021). This suggests that Newcrest FY21 result is better than market expectations. Newcrest trades on a forward P/E ratio in the mid-teens and has a dividend yield of around 2% (fully franked).


Disclaimer:

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).

This article is provided for informational purposes only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceedings. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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