Newcrest Mining: Full year dividends surge on new payout policy

About the author:

Mat Collings
Author name:
By Mat Collings
Job title:
Research Analyst
Date posted:
19 August 2021, 1:30 PM
Sectors Covered:
Mining

  • With EPS at US$1.425 (+71% yoy) and a revised divided policy targeting 30-60% of free cash flow, Newcrest Mining (ASX:NCM) declared a final dividend of US$0.40 per share for a full year payout of US$0.55 (+129% yoy).
  • EPS was boosted by higher gold prices in the first half of the year, and surging copper prices in recent periods.
  • NCM is guiding to 1.8-2Moz of gold and 125-130kt of copper production in FY22, with mid-point AISC of US$960/oz, and circa US$1bn in major project capital.
  • We revise our price target (login to view) and maintain an Add rating. Change in target price is driven by tweaks to our FX and copper price assumptions, along with FY22 guidance.

Event: Full year financial results

NCM had already released full year production statistics with its Q4 update. A record NPAT for NCM of US$1.2bn, up 80% yoy, driven by higher gold and
copper pricing during the year.

A record annual divided of US$0.55/share after the company declared a fully franked US$0.40/share final dividend. This is equal to a 41% payout of FY21 free cash flow, in line with a revised dividend policy targeting 30-60% payout of free cash flow.

Analysis

A solid year for NCM, with margins underpinned by strong gold prices in the first half of FY21, and surging copper prices in the second half resulting in record low
production costs at Cadia.

Copper credits are forecast to become increasingly important to the Cadia operation as gold head grades decline over time.

Forecast and valuation update

We have revised our near-term production targets for NCM using guidance provided by the company today.

Further updates are expected in the coming months as NCM progressively releases studies on several key projects, with the Havieron study late in CY21 a key event in our view.

We update our target price (login to view) and maintain an Add rating. In addition to guidance updates, we have made modest changes to our copper price forecast and short-term FX rates. See page 4 for further detail.

Investment view

NCM remains a conservative investment for exposure to gold and copper on the ASX. While the share price is not as leveraged to either metal as smaller peers,
NCM’s large production profile and long-life asset base means results tend to be stable and predictable.

We remain cautious in the short term, with a major shutdown underway at NCM’s flagship Cadia operation. While this is a one-off event, the impact on production and costs in the current quarter may surprise.

Price catalysts

With multiple updates and studies due to be reported by the company in the coming months, NCM will have steady news flow for the market on its medium-term growth plans. NCM’s investor day is planned for late in the current quarter.

 

Risks

The impact on group costs and production of the current partial shutdown at Cadia may surprise the market but has been well flagged.

NCM’s cash flow is heavily exposed to the AUD, while its mix of gold and copper production provides some degree of natural hedging.

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