Could Newcrest Mining be ready to bounce?
The share price of Australia’s leading gold miner, Newcrest Mining (ASX:NCM), has been somewhat disappointing for the last few years. That could soon change if the recent recovery of gold price continues, recent corporate actions start to bear fruit and if investors start to take note of the company’s significant copper assets.
Newcrest Mining has long been synonymous with the Australian gold mining industry with its Cadia mine in regional NSW being one of Australia’s largest operating gold mines. Being responsible for a large portion (more than 500k oz of gold) of total group gold production, Cadia is a world-class mine due to its long mine life (more than 30 years) and low production costs. In addition to its status as a high-quality gold mine, the growing copper output at Cadia may also be an underappreciated side of the Newcrest Mining business that may present significant future upside. With total group annual copper production set to grow to at least 135kt for FY23 and 175kt by FY30, this surpasses the output of a listed copper miner, OZ Minerals Ltd (ASX:OZL) at approximately 130kt, which was recently acquired by BHP for $9.6 billion. Gold production for Newcrest currently sits at around 2 million ounces and is set to grow to between 2.1 million to 2.4 million ounces for FY23 with the inclusion of the recent acquisition of Brucejack mine in March 2022, another long-life and low cost gold mine located in Canada.
Brucejack was acquired as part of Pretium Resources Inc and is close to the Red Chris mine, another Newcrest asset in the region. At the end of its first quarter of ownership by Newcrest, Brucejack already generated US$88 million of free cashflow and is also yet to contribute a full year of production and earnings to the Newcrest group. Annual synergy benefits were also upgraded from C$15-20 million to C$20-30 million in August 2022, presenting further upside for shareholders. Another Newcrest mine, Lihir located in Papua New Guinea, is currently producing around 600koz and is projected to increase output to 1 million ounces for 10 years from FY24 onwards with work progressing well towards this milestone.
In relation to relevant external factors, gold was historically seen as an effective inflation hedge but investors who believed this have been disappointed in the last few years. Recently however, large institutions and central banks have announced shifts in increased strategic asset allocations to gold to increase portfolio diversification driven by rising uncertainty over inflation, future central bank moves and geopolitical tension. Such moves can sometimes provide commodity price support.
With world-class mines currently in its portfolio, Newcrest Mining represents a potential large capitalisation stock opportunity for medium term earnings growth, driven by material increases to copper and gold volumes and production cost benefits. This is fundamentally attractive in its own right but should external factors like the gold and copper price rise in the future, this would also provide a welcome tailwind for increased revenue and earnings upside for shareholders.
The Montgomery Funds own shares in Newcrest Mining. This article was prepared 24 January 2023 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Newcrest Mining you should seek financial advice.
Sean Sequeira jointly established Australian Eagle Asset Management in 2004. Sean was appointed Australian Eagle’s Chief Investment Officer in 2016. In addition to stock selection and analysis, Sean is responsible for all aspects of the investment process. Sean is head of Australian Eagle’s portfolio risk committee and process integrity committee. He is also one of the three investment team members that make up the portfolio construction committee.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
