COMPANY DATA

Source: Bloomberg

Company Description

INVESTMENT SUMMARY

We rate NCM as a Neutral for the following reasons:

• NCM has one of the lowest cost bases amongst gold mining peers in Australia. We expect continued cost outs to lower the All-in Sustaining Cash Cost (AISC), subject to movements in currency (AUD).
• Commodities price (particularly Gold and Copper) surprises on the upside especially due to geopolitical tensions.
• Leveraged to the USD, which we see appreciating against other currencies including AUD.
• NCM has organic growth options at Lihir, Cadia and Golpu.
• Solid assets with long reserve life.
• Strong management team with significant mining expertise.

We see the following key risks to our investment thesis:

FY18 RESULTS SUMMARY

Figure 2: NCM FY18 financial metrics

Source: Company

P&L. FY18 underlying profit came in at $459m, up 16.5% (from $394m), buoyed by strong increases in realised copper (+26.6%) and gold (+3.6%) prices. Slightly offsetting these benefits however were production volumes for both gold (-1.4%) and copper (-7.1%) which were hurt by the effects of the Cadia seismic event and the tailings facility embankment slump.
All-In Sustaining Costs were slightly higher at $835/oz compared to the prior year ($787/oz), driven by increases in mining activity and milling rates at Lihir and Telfer, and higher general energy costs. NCM also realised a stronger AUD compared to the USD, which adversely impacted operating costs and depreciation expense.

Figure 3: NCM FY18 debt metrics
         
Source: Company

Balance Sheet. Management spent considerable effort in strengthening the balance sheet over the year, with net debt down -31% to $1,040m (from $1,499m), gearing at 12.2% (from 16.6%) and net debt / EBITDA at 0.7x (from 1.1x). Cash levels also sit at a high $953m (from $492m). This strong cash position has increased NCM’s liquidity coverage to $3.0bn, $2.0bn of which are committed to recently renewed undrawn bank facilities (maturities across FY22 – FY24).
On the analyst call, NCM were questioned about their capital management initiatives given their build up of cash and resilient balance sheet position. With their answers somewhat ambiguous, our key takeaway was that the management team are comfortable with continuing to accrue cash in preparation of growth projects. The Group is running well below target debt metrics and we see this positioning NCM well for when capital intensity ramps up in due time.
Owing to the elevated cash balance, NCM also announced a final dividend of US11.0cps – representing a +47% increase over last year’s final dividend.

NCM peer group trading multiples…

Figure 4: NCM comps table – consensus >

Source: Bloomberg

Figure 5: NCM PE-multiple vs long-term average>

Source: Bloomberg

Figure 6: NCM Financial Summary >

Source: BTIG, Company, Bloomberg

COMPANY DESCRIPTION

Newcrest Mining Limited (NCM) engages in the exploration, mine development, mine operation, and the sale of gold and gold/copper concentrates. It is also involved in the exploration of silver deposits. The company primarily owns and operates mines and projects located in Cadia and Telfer in Australia; Lihir based in Papua New Guinea; Gosowong based in Indonesia; Bonikro based in Cote dIvoire in West Africa.