Newcrest Mining: Dividend offsets softer outlook

About the author:

Author name:

By Adrian Prendergast

Job title:

Senior Analyst

Date posted:

23 August 2022, 8:30 AM

Sectors Covered:

Mining, Energy

• Newcrest Mining (ASX:NCM) had a mixed result, with steady earnings, a strong dividend but weaker FY23 guidance for both production and costs.
• Downgrades to FY23 EBITDA estimates based on production/cost guidance.
• Market focus on Brucejack improvement is high. The path to full production is at least so far proving trickier than expected. NCM maintains it is happy with the acquisition.
• Studies on growth projects remain the main catalyst for NCM outside of gold and copper prices.
• We maintain our Hold rating, with a (login to view) target price.

FY22 result

Change of analyst. Adrian Prendergast has taken over full coverage of NCM.

A mixed FY22 result. NPAT lower than expected at US$872m (vs MorgansF US$943m). Underlying EBITDA meanwhile was dead in line at US$2,054m (vs MorgansF US$2,049m) and down c10% year-on-year on a combination of lower production and higher costs.

Dividend surprise. Highlight of the result was the US20 cent fully franked final dividend NCM announced, trouncing consensus estimates of a US12 cent final dividend.

Guidance softer. FY23 guidance was on balance on the weaker side, with production guidance of 2,100-2,400koz (vs MorgansF 2,389koz) and AISC (all-in sustaining cost) guidance for FY23 of US$2,100-$2,400m (equivalent to circa US$930-$1,070/oz).

Analysis

Cadia output is expected to be unaffected by the recent interruption to underground production, with mining impacted for approximately a month in total while NCM although milling sustained by existing inventories.

An improvement in production from recent acquisition Brucejack was a large focus in the result, with NCM planning to lift milling to 4,500-5,000tpd (from current 3,800tpd). FY23 guidance disappointed, we are taking a cautious view.

Forecast and valuation update

The weaker-than-expected guidance has led us to downgrading our FY23 gold production to ~2,250koz (down from ~2,390koz).

We have downgraded AISC assumptions for FY23 based on company guidance, with our new estimate at approximately US$1,010/oz (was ~US$950/oz).

Post these changes we revise our FY23 EBITDA estimate to US$2,371m (was US$2,811m), while our target price is lower at (login to view).

Investment view

NCM’s share price has drifted lower in recent months on sustained gold, copper and AUD pressure.

We still see NCM trading close to fair value and maintain our Hold rating with a revised (login to view) target price.

Price catalysts

• Not as strong as some gold peers in terms of catalysts.
• Brucejack lift in performance, studies on Cadia development, Red Chris block cave, and Havieron.

Risks

• Gold and copper price risk to earnings and valuation.
• Currency risk in AUD, which makes up 55% of group costs.

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