Top Gainer: Newcrest Mining (NCM)
Australia’s biggest gold producer, Newcrest Mining (NCM) has been lucky enough to be smack bang in the middle of a gold boom that has continued unabated for the last decade. And ride the boom it has, with the NCM share price soaring from $5.60 at the beginning of 2003 to an all-time high of $42.66 in mid-April – an almost eight-fold increase in just eight years. Although it has pulled back since then, Friday saw the share price head up again, with the stock jumping 2.3% to $39.54.
The company is currently in a transitional phase with management – it is looking for a new chief financial officer to replace current CFO Greg Robinson, who took over the company as chief executive on July 1. The promotion of Robinson from CFO to CEO provides some stability in the changeover period, as the gold giant tries to capitalise on the booming gold price, which has more than doubled in the past two years and is up more than 500% over the past 10 years to a record $1,880 an ounce.
Analysts are still bullish on both gold and NCM’s prospects, and predict more of the same as you will see from the analysts’ comments below.
NCM is a low-cost gold and copper producer with its main operations in Australia and Indonesia with other projects in Papua New Guinea and Fiji. NCM owns and operates seven mines – five located in Australia, one in Indonesia and one in Papua New Guinea. According to NCM, all mines are based on the conversion of exploration successes into low cost, long life mines.
About half of NCM’s assets are Australian based which means that there is low sovereign risk. The merger with Lihir merger increased exposure to PNG and Africa but it also raised the proportion of the company’s revenue earned from gold.
Les Szancer of Alpha Broking says Newcrest offers long life operating mines and strong exploration prospects. “Newcrest, as an unhedged gold producer, will benefit as I am bullish about gold,” he says. “I view the share price retreat on news of lower production as a buying opportunity in a top gold producer.”
Peter Day, analyst with Wilson HTM also has a buy on the miner. He says that repair work has started on a high voltage switchgear failure at the Lihir power station in Papua New Guinea, which interrupted production and reduced capacity. Day says that a return to full operating capacity is expected over the next three weeks. Day is bullish on NCM’s prospects, pointing to the Wafi-Golpu exploration asset, which he describes as one of the most exciting new gold discoveries worldwide. “While it’s taken NCM’s growth path to a new level, it isn’t reflected in the share price,” Sayd Day. “NCM continues to offer excellent exposure to a rising gold price.”
Cleo Nanni from Novus Capital is also a fan of the gold and copper producer. “Despite the company downgrading full-year gold production, Newcrest offers ideal exposure to a rising bullion price that’s breached $US1880 an ounce,” says Nanni. “Consider buying this company on any dips below $38 and continue to accumulate at each opportunity.” James Georges from Patersons also recommends to buy on dips. “As a low cost quality gold producer, this stock has offered good returns amid a buoyant gold price,” says Georges. He believes that at the right price, NCM is a cornerstone gold stock for any portfolio.
Gold aside, it escapes most investors’ attention that NCM is also a large copper producer. Hamza Habib, associate adviser at Patersons Securities, expects an improving global economy to drive copper demand beyond supply. “For 2011, the market is expecting a copper supply deficit above 444,000 tonnes,” he says. “This is subject to change depending on the speed of the global recovery.” Habib says in December 2010, Newcrest sold 37,000 tonnes of copper, generating $303 million in revenue. “Newcrest has almost doubled its capital expenditure on current projects and has also ramped up investment for further exploration,” Habib says. “Both, the company’s robust balance sheet and diversified operations across Australia, Indonesia, Papua New Guinea and Fiji present significant growth for years to come.”
Brett Schreuders from Alto Capital has a hold on the gold and copper miner, admitting that with global uncertainties persisting, the outlook for gold remains robust. “NCM remains Australia’s premier gold stock, with low cost production, good exploration upside and strong growth potential,” says Schreuders. “The merger with Lihir Gold last year increases exposure to West Africa and Papua New Guinea, but with half its assets in Australia, the sovereign risk for NCM remains reasonably low for investors wanting exposure to gold.”
Reuters analyst consensus is a BUY across 18 analysts, with 11 buys, 6 outperforms, 1 hold, 0 sells.
While the merger with Lihir Gold has increased NCM’s soverign risk, it has also increased its exposure to gold. And with a booming gold price showing no signs of weakness as global uncertainties remain, investors could do worse than to consider NCM as part of their portfolio. With plenty of analysts bullish on the stock and institutional investors jumping on board, there is a lot of the right type of interest in NCM.
Based on Thomson Reuters data, five analysts have a buy on NCM, three have an outperform and seven have a hold.
Chart: Share price over the year to 19/08/2011 versus ASX200 (XJO)
Stock code: NCM
Charts: Newcrest Mining Limited
More news: Newcrest Mining Limited
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