Company Overview - Newcrest Mining Limited (Newcrest) is a gold mining Company, operating in the Asia Pacific region and West Africa. The Company’s asset portfolio includes operating mines that use a variety of efficient mining methods for large ore bodies, together with selective underground mining methods to optimize high-grade epithermal deposits. Its mines are located in Australia, Papua New Guinea (PNG), Indonesia, and in Cote d’Ivoire, West Africa. The Company’s operations include Cadia Valley Operations (near Orange, New South Wales), Telfer (Pilbara Region, Western Australia), Gosowong (Halmahera Island, Indonesia), Lihir (New Ireland Province, PNG), Hidden Valley (Morobe Province, PNG), Bonikro (Cote d’Ivoire, West Africa), Wafi-Golpu, PNG and Namosi, Fiji.


Analysis - The shares of Newcrest Mining Limited (ASX: NCM) have delivered a year to date returns of 15.24%, after witnessing pressure since five years (with the stock posting a negative returns of 63.4% over the last five years owing to pressure on gold prices). The company has three assets with a gold equivalent resource of greater than 50Mz each. On the back of an improving gold outlook, the group has consequently improved its production, as well as undertook initiatives to improve its operating efficiency. 


Strong Portfolio and assets (Source: Company Reports)

Newcrest entered into an agreement with Mungana to explore gold-copper porphyry deposits at the Chillagoe project at North Queensland. This type of mineralization prospects have already been witnessed by Red dome deposit, which produced 1Moz of gold, 35,000 t of copper and 4.3 Moz of silver in the past. The company will fund up to $20 million on exploration charges for eight years, with a starting commitment of over $3 million for the first eighteen months. The firm also has an option to spend an extra amount of up to $17 million for an additional period of 78 months to get 70% interest in the exploration area. Meanwhile, Mungana intends to focus on exploring the high grade zinc and base metal assets at Chillagoe, which includes King Vol deposit, Red cap and Mungana areas.

Newcrest also entered into an agreement with Farm-In to fund Laneway’s southern Coromandel gold project activities to earn up to 80% interest. Newcrest will be funding the two stages of the Minimum work programs on the site, while Laneway will be the manager of the project during these two stages development.

 

March Quarter Performance

The group’s quarterly gold production rose to 610,186 ounces in the March quarter, as compared to 577,110 ounces in December 2014 and 561,731 ounces in September 2014 quarter. The cadia east gold production contributed 121,592 ounces during the quarter, which is a 19% rise as compared to the previous quarter.  The overall average realized gold price during the quarter improved to $1,556 per ounce, against $1,402 ounces in previous quarter and $1,393 per ounce in September 2014 quarter. But the overall copper production fell to 24,307 tonnes in March quarter, as compared to 25,508 tonnes and 24,831 tonnes in December 2014 and September 2014 respectively. Meanwhile the group has successfully decreased it’s all in sustaining costs to $946 per ounce, as compared to $963 per ounce in the previous quarter, attributed to the better production at Cadia and higher grade ore at Bonikro. After witnessing pressure from few years, Newcrest has taken up cost cutting initiatives to achieve efficiency as well as competitive cost position in the industry.


Competitive cost position (Source: Company Reports)

Newcrest estimates an improved copper production in the range of 95 to 105kt during the fiscal year of 2015. The firm’s all in sustaining costs is expected to be in the range of $2.3 billion to $2.5 billion, and $2,300 million to $2,500 million.  The total capital expenditure is estimated to be in the range of $585 million to $652 million, as the decreased sustaining capital expenditure at Lihir is expected to offset higher maintenance expenditure to achieve enhanced reliability. Cadia copper production is expected to be over 75kt for FY15.

Cadia Project

With regards to firm’s major prospect Cadia project, Cadia east panel cave 1 production was improved during the quarter driven by two high capacity loaders delivery. As a result the Cadia east gold production improved to 121,592 ounce as compared to 102,347 ounce in December 2014 quarter and 82,352 ounce in September 2014 quarter. Consequently the overall cadia gold production was boosted to 169,164 ounces as compared to 153,119 in September 2014.

However, the Ridgeway production was under pressure, with the gold and copper production plunging to 47,571 ounce and 8,128 tonnes against 62,421 ounce and 10,122 tonnes in the previous quarter. This decrease was mainly due to increase in downtime on the materials handling system on the back of slumping draw points and presence of wet clay materials. As a result the overall copper cadia production decreased to 18,588 tonnes in the quarter, from 19,265 tonnes in December quarter, despite improving cadia copper production. 


Cadia performance (Source: Company Reports)

Lihir Project

As per the Lihir’s PNG highlights, the gold production rose 11% to 178,628 ounces as compared to the previous quarter, and even achieved 12% decrease in AISC to USD 1,096 per ounce. Gold grade improved by 6% to 2.51g/t against the before quarter. The milled ore tonnes was 7% more as compared to the previous quarter. The ore mined for Lihir material movements was 67% more while the ex-pi waste mined (1.88Mt) rose 21%, as compared to the before quarter. On an overall note, the annualized throughput rate was 11.1Mtpa during the quarter. Meanwhile, the group estimates sustainable 12 Mtpa grinding throughput rate by the end of 2015. 


Lihir Performance (Source: Company Reports)

 
Telfer

The gold and copper production fell over 8% against the corresponding period, impacted by the issues to the main dome pit. Seasonal weather events have also interrupted pit operations for a few days. Meanwhile the open pit and ore stockpiles have around 1.5 years of ore feed prior to the coming cutback while the underground ore offers higher duration. Newcrest’s pump capacity upgrade on flotation circuit has hurt gold and copper to tailings by 20%. 


Telfer Performance (Source: Company Reports)

Bonikro


Bonikro (Source: Company Reports)

Gosowong

As per the gosowong highlights, the US$ AISC per ounce fell 14% impacted by higher gold production, while the gold grade increased by 14% to 12.98 g/t, as compared to the prior quarter.
 
The gold production surged 54% to 36koz as compared to the before quarter, driven by the higher grade. Accordingly, the form cut its US$AISC per ounce by 51%. The life of the hire oxide material is around six months.


Gosowong (Source: Company Reports)

Hidden Valley

The production at hidden valley was down for both March and December quarters impacted by unplanned downtime as well as ore availability. Consequently the US$ AISC per ounce rose during both the quarters impacted by lower production, high production stripping and high sustaining capital expenditure. 


Hidden Valley (Source: Company Reports)

Golpu feasibility Study

The Golpu project is a world class ore body having mineral resources of over 20 million ounces and 9 million tonnes of copper. According to the Golpu pre-feasibility study highlights, the stage one is expected to witness an expenditure of over $2.3 billion and the first production is forecasted to start by 2020. The approximate mine life is expected to be 27 years. The copper C1 cash costs is estimated to be US$0.78 per lb while the gold AISC is expected to be negative US$1,685 per ounce. The initial block cave operating at 3Mtpa is expected to be substituted by a deeper block cave operating at 6Mtpa from 2024. Meanwhile, the stage two pre-feasibility study update is ongoing. 


Golpu feasibility study (Source: Company Reports)

Conclusion

Newcrest has a solid portfolio base and has planned a pipeline of developments for their projects. The Cadia east expects to improve the commercial production while the Lihir pit sequencing evaluation is under progress. Wafi-Golpu stage 1 feasibility study is estimated to be finished by this year-end while the Namosi drilling at Wainabama is expected to be finished by the fiscal year of 2015.


Newcrest Daily Chart (Source - Thomson Reuters)

The stock of Newcrest have corrected over 8.9% in the last three months and over 8.2% in the last four weeks, which we believe is the perfect opportunity to enter in the stock. More stable gold prices outlook, cost cutting measures to improve efficiency, which would eventually drive the firm’s profitability and positive free cash flow is expected to offer support to the stock levels.

Based on the foregoing, we recommend a “BUY” to Newcrest Mining at the current price levels of  $12.59

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