Company Overview - Newcrest Mining Limited is a gold mining company. The principal activities of the Company are exploration, mine development, mine operations and the sale of gold and gold/copper concentrate. The Company's operating segments are: Cadia Valley, Australia; Telfer, Australia; Lihir, Papua New Guinea; Gosowong, Indonesia; Hidden Valley JV (50% interest), Papua New Guinea; West Africa (includes Bonikro operations and exploration and evaluation activities in Cote d'Ivoire), and Exploration and Other. The Exploration and Other segment comprises projects in the exploration, evaluation and feasibility phase and includes Wafi-Golpu and Morobe Exploration in Papua New Guinea (PNG), Marsden and O'Callaghans in Australia, and Namosi in Fiji. The Company has operating assets in four countries, primarily in Australia and the South-West Pacific region.




NCM Details
 
Partnered with Apollo: Newcrest Mining Ltd (ASX: NCM) recently partnered with Apollo group, a gold and nickel sulphide exploration firm in Australia for Seguela Gold Project. Both the groups implemented a non-binding heads of agreement for an option to acquire the Seguela gold project. Investor’s sentiment on NCM improved with this agreement and as a result, the shares of Newcrest Mining surged by 8.57% in just last one month (as of December 15, 2015). Apollo was conducting exploration activities since the past five years at Seguela permit which is located at central west Côte d’Ivoire and 250km North West from the group’s Bonikro gold operations. Meanwhile, NCM would now undertake exploration activities in the project for up to two years leveraging its solid technical expertise and financing capabilities and could choose to exercise the option during the second year. In case Newcrest Mining chooses to exercise the Option, NCM could buy the entire stake of the Seguela permit from its current permit holder Mont Fouimba Resources, which is 80% owned by Apollo. The group might exercise the option if the due diligence activities on the project are positive, but exercising the option is subject to several conditions like receiving 20% shareholder approval from Mont Fouimba Resources.
  

Seguela Gold Project location (Source: Company Reports)
 
No impact on Cadia’s FY16 production, despite witnessing operations hassles: Newcrest Mining gold production for cadia operations fell to 157,963 oz during the first quarter of 2016 against 180,368 oz in June quarter on the back of decrease in grades due to planned reduction in head grades at Ridgeway and rising lower grade volumes from Cadia East Panel Cave 2 (PC2). The group updated that its Cadia operations reported a problem on the motor on concentrator 1 SAG mill during October. On the other hand, Newcrest Mining confirmed that there would be no impact on the production, capital and cost guidance for cadia operations during fiscal year of 2016. The group expects to fully process the stockpiles by the end of the fiscal year of 2016, which were accumulated since the last five weeks (as of November 23 report). Cadia Concentrator 1 SAG mill resumed its operations at full capacity after witnessing repairs and a series of operational testing. Meanwhile, activities like installing the conveyor to bypass the mill and shifting the ore from the high pressure grinding rolls to the ball mill circuit, are on track and forecasted to be finished by the early of December 2015, offering more potential for operating flexibility. The group delivered a strong Cadia Gold production in FY15 which surged by 13% on a year over year basis while copper production surged by 22% yoy during the period. Newcrest Mining’s application to further enhance its Cadia processing plant permit capacity to 32 million tonnes per annum against its present 27 million tonnes per annum was approved by the NSW Government during September 2015.
 
Building exploration programs: Newcrest Mining has been delivering successful explorations and also pursuing funding activities for potential targets as well as seeking early entry opportunities. The group recently made an $11 million Farm-in Agreement with Oro Verde to fund and explore Topacio Gold Project in Nicaragua. Both the firms intend to achieve a multi-million ounce high grade epithermal gold deposit at Topacio. Oro Verde has the option to acquire entire Topacio Gold Project which could be exercised by February 2018. NCM might fund over USD 4.4 million or $6.1 million for exploration activities and expenditure, which even comprises the associated costs of Oro Verde’s option exercise to earn the first 51% interest. Meanwhile, NCM could earn further 24% interest (75% total) by funding more USD 3.5 million or $4.9 million of expenditure in the next three years, which would result to an entire commitment of USD 7.9 million or $11.0 million for around 5 years. NCM has been chasing Greenfields opportunities like aiming gold-copper porphyry related mineralization at Mungana in Queensland and leveraged its Gosowong experience to search for high grade epithermal vein style mineralization at the Southern Coromandel project in New Zealand. The group also signed a Land Use Agreement with the Martu people who are the owners of the land for the Telfer gold mine in Western Australia’s Pilbara region. NCM would offer over $18 million in five years for Martu benefits and implement a revenue based payment from mining in the agreement area. The group made non-binding agreement with Taruga Gold over the Dabakala concession situated in Côte d’Ivoire. Newcrest Mining also partnered with PT ANTAM (ATM) to find development opportunities for gold and related minerals exploration in many new prospective areas in Indonesia.
 

Major Nicaragua gold deposits and Topacio Gold Project (Source: Company Reports)
 
Focusing on development costs for Lihir pit optimization study: Newcrest Mining has improved its Lihir gold production to 191 koz during first quarter of 2016 as compared to 172 koz quarter average for fiscal year of 2015 and 162 koz quarter average for fiscal year of 2013. Still, Lihir operations were able to decrease its All-In Sustaining Cost to USD 1,008 per ounce during first quarter of 2016 from USD 1,169 per ounce in fiscal year of 2015. The group is targeting to enhance its Lihir operations efficiency further by adopting a new operating strategy for Lihir operations to generate a 15% rise in plant throughput during the year with minimal reduction in recovery rates. NCM estimates to generate 12mtpa milling throughput by the end of December 2015 while targeting a new sustainable grinding throughput of 13mtpa. The group is also targeting to cut its capital expenditure for Lihir pit optimization study to over USD 735 million in 2015 (Pit Optimization Study Coffer Dam Wall) as compared to around USD 1,290 million incurred during 2013. NCM is pursuing alternative seepage barrier options like Near Shore Cut-off wall which might need a lower construction capital of over USD 75 million.
 

Potential for decrease in capital expenditure and redefined mine plan at Lihir pit optimization (Source: Company Reports)
 
Golpu might promise a strong potential: Newcrest’s World class copper-gold deposit, Golpu project’s Stage 1 feasibility is finished while Stage 2 pre-feasibility studies are estimated to be completed by December 2015. The group already got permits for advanced exploration activities and already received feasibility support. NCM is also settling appropriate framework with PNG Government and local landowners. Meanwhile, the group is focusing on Wamum project, an advanced exploration stage project located 22km from North-West of Wafi–Golpu and has two known copper–gold porphyry systems - Wamum and Idzan Creek. NCM started its drilling activities in this project during the September quarter, and the drill testing of the Idzan Creek porphyry center are underway. The group is designing holes to test for high grade mineralization at depth.
 
Stock Performance: The shares of Newcrest Mining delivered a year to date returns of 13.32% (as of December 15, 2015) driven by gold prices, positive exploration results from the group coupled with Australian dollar pressure and NCM’s cost efficiency efforts. Newcrest mining issued a gold production forecast of 2.4 to 2.6 million ounces during fiscal year of 2016 while the copper production might be in the range of 80 to 90 thousand tonnes. We believe that the group’s ongoing cost optimization and Edge program (which is focusing on safety, operational efficiency, cash generation, and profitable growth) would continue to add support to NCM’s performance in the coming periods. We believe that the positive momentum in the stock would continue as the present tough market conditions might drive the gold prices. Based on the foregoing, we give a “BUY” recommendation on the stock at the current price of  $12.59
 
 
NCM Daily Chart (Source: Thomson Reuters)

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