Newcrest Mining Commits To Increased Production As Gold Stabilises

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Newcrest Mining Commits To Increased Production As Gold Stabilises

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  • FY21 Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA) of US $2.4 billion
  • Expects improved gold & copper production towards FY30
  • Potential buying opportunity with share price 24.51 per cent lower compared to FY20

Peak spot gold prices of US $1,900 per ounce in June have undeniably produced favourable realised profits for Australian gold producer Newcrest Mining Limited. With these highs cooling to more stable average prices since, the company’s latest plans to scale up its production for FY22, present investors wondering what effect future gold valuation may yet hold in store for the company.

Newcrest announced broader operations growth plans this morning, presenting anticipated positive production upsides for its operations. Specifically, the company reports an expected 37 per cent growth in copper production by FY30, as well as exploration upsides for its existing stage 1 mining projects. As a high margin gold producer, Newcrest is presently focused on developing its portfolio of project sites in the North Americas, as well as in the Australia-Pacific region. Looking ahead to its progress towards FY30, the company seeks to maintain its strategic focus on maximising its healthy cash flow towards the continued development of its production capacity.

A look at Newcrest Mining’s FY21 results presents strong production over the reporting period, bolstered by peak realised gold prices of up to US $1,900 per ounce in June this year. This nets Newcrest Mining an EBITDA of US $2,443 million, and an All-in Sustaining Cost (AISC) of US $1,928 million. The company reported 55 per cent higher underlying profit at US $1.2 billion, along with a record free cash flow amount of US $1.1 billion. This marks the company’s sixth consecutive year of delivering increased dividends, with the final fully franked dividend at US 40 cents per share, up 129 per cent compared to the past year.

 Safe Haven Assets and Emerging Use Cases

As global economies move through the final quarter of 2021, a couple of trends featuring the rise of green energy, and tapering of COVID financial stimulus would seem timely aligned to Newcrest’s plans to focus on increased production capacity.

Gold, according to recent analysis published this quarter, currently shares investor support with the US dollar, with inflation fears and uncertainty to do with US economic stimulus looming among current global trends. While the dollar has additionally gained investor attention amidst surging energy prices, recent fears to do with the expected fallout of China’s Evergrande highlight gold’s longstanding appeal as a safe-haven asset. The culmination of these factors have seen the spot gold price stabilising at around US $1,780 per ounce, compared to lows of US $1,680 earlier in March.

Copper, on the other hand, is increasingly tied to the green economy through use cases that see it potentially used as an integral component within the coming green energy market. Particularly, copper’s use has been explored in ongoing research to find suitable, stable vessels in which hydrogen fuel can be stored. These additional use case factors compound upon the precious metal’s exponentially increasing application within electricity investments, and in global building and construction industries. Valued at US $156.11 billion in 2020, the global copper wire and cable market is projected to reach an impressive US $267.17 billion by 2030.

Newcrest Mining provided FY22 guidance that includes an expected AISC to fall within the range of US $1,720 to US $1,920 million. With production anticipated to scale up for the company’s global operations, the expected end of the global pandemic may well see the gold spot price stabilising into the beginning of 2022, and climb steadily throughout the year to positively gear Newcrest’s increased production for a positive realised price. At the time of writing, Newcrest Mining’s share price tracks 24.51 per cent lower over the past year.

Louis Mosmann

Louis Mosmann is a Private Wealth Client and Research Assistant at KOSEC- Kodari Securities. Louis covers macroeconomic events, global markets and ASX300 company announcements, allowing clients to make more informed investment decisions. Email Louis at l.mosmann@kosec.com.au.

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