Stock of the Day – Newcrest Mining (NCM) Third Quarter fiscal 2014 production was largely as expected, declining 11% to 552,000 ounces. Newcrest should deliver at the top end of fiscal 2014 guidance of 2.0 to 2.3 million ounces. Cash costs increased to AUD 723 per ounce from AUD 695, with lower output due to maintenance and reduced plant through put. Operating costs remain on a downward trend with aggregate site costs again falling.
Fiscal 2014 all in sustaining costs should be should be at or below the bottom end of guidance of AUD 2.73 to 2.45 billion. Management commentary around ongoing productivity efforts and cost controls is pleasing. Newcrest says much improvement and optimization is still to go, particularly at Lihir. The long reserve and resource life is a key differentiator and supports future growth. The market is disinterested in the large reserve base but it provides valuable options long term.
Source - NCM Company Reports
The renewed focus on productivity and costs is welcome but further steps are required to sustainably improve the cost position and the balance sheet. During the March quarter Newcrest produced 551.6koz of Gold and 21.0kt of Copper at an AISC of A$988/oz. Gold production for FY14 YTD now sits at 1,795koz (or 76% of annual guidance) at an AISC of A$988/oz. This was very much in line with the company’s most recent outlook that 2H14 would be softer than the strong 1H14.
NCM Daily Chart (Source - Thomson Reuters) Exploration spend remains on track for lower end of guidance. Newcrest has reduced the number of active drill rigs from 16 to 5 over FY14. Further demobilization is likely with the current drill program at Wafi Golpu now complete for FY14. We expect Newcrest to meet FY14 guidance with some potential to the upside given the ore processing disruptions across top three operations, Cadia Valley, Lihir and Telfer during the march Quarter. On the basis that a similar production performance is achieved in the June Quarter, production would come in slightly above 2.30Moz and AISC looks like coming below guidance at A$980 – 1,020/oz. We believe NCM is undervalued and reiterate our BUY on the stock at the current price of $9.95.
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