Newcrest Mining: Bumper Q4 sees NCM reach gold guidance

About the author:

Mat Collings
Author name:
By Mat Collings
Job title:
Former Morgans Analyst
Date posted:
22 July 2022, 9:00 AM
Sectors Covered:
Mining

  • 637koz of Q4 gold production (up 31% qoq).
  • Annual gold production of 1.96Moz beats our forecast of 1.9Moz and sees Newcrest Mining (ASX:NCM) reach FY22 guidance (1.925-2.025Moz).
  • Lihir in PGN outperformed for the quarter after a soft year, but failed to reach its annual guidance range, while the recently acquired Brucejack hit the top of the guidance range for the period NCM has owned the operation.
  • Our price target moves to (login to view) on a softer copper outlook and declining sentiment in the sector more broadly. We retain a Hold rating for NCM.

Event

Q4 production reporting.

Analysis

Newcrest Mining (ASX:NCM) has finished FY22 strongly, with the flagship Cadia operation returning to near full production throughput rates, helped by higher head grades.

Lihir’s production is the standout for the quarter, up 26% from Q3 to 213koz. Higher grades and less downtime (both planned and unplanned) boosted performance.

NCM cautions that major maintenance is scheduled at Lihir in the September quarter, with the company tending to concentrate maintenance activities at all operations early in the financial year.

Forecast and valuation update

We adjust FY22 results to reflect today’s operational cost and production update. Full financials will not be released until August.

Recent adjustments to our copper price deck, along with revisions to near-term costs, have seen our sum of the parts NPV valuation for NCM reduce. Our target price moves to (login to view) and we retain a Hold rating on the company.

Investment view

A strong end to the year sees NCM hit guidance and beat our forecast but we expect a pull back in Q1 with major maintenance likely at several operations.

NCM is investing in its future in the coming year, with a focus on cost reduction while maintaining its production profile through acquisitions (such as its recent purchases in Canada) as well as exploration and development (such as Havieron in WA’s Pilbara region).

We like the long-term outlook NCM is investing in, but caution that the company (along with most in the sector) faces a challenging operating environment in the near term with elevated costs and metal prices under pressure.

Price catalysts

Progress at Havieron in WA, where an independent expert recently valued the asset at A$1.2bn, presenting upside to our current valuation of the combined Telfer/Havieron.

Risks

Growth investment in an inflationary environment increases the risk NCM may have to spend more than it has guided to achieve its targeted cost reductions or accept higher opex.

Gold and copper prices, as well as sentiment towards the resources sector. Gold has softened (particularly in USD terms) with inflation/interest rate outlooks weighing on the metal, while concerns about China’s growth and metal demand have seen copper prices retreat.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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