Newcrest Mining Limited

Company Overview: Newcrest Mining Limited (ASX: NCM) is one of the leading gold production companies in Australia that owns and operates a portfolio of predominantly low-cost, and long-life mines. The company is mainly involved in the exploration, mine development, mine operations, and the sale of gold and gold/copper concentrate. The company’s operating mines are located in Australia, Canada, and Papua New Guinea. NCM was listed on ASX on 4 June 1987.

NCM Details

Key Takeaways of FY21 Results:

• Rise in Revenue: For the year ended 30 June 2021, the company reported total gold production of 2.1 million ounces at an AISC of US$911 per ounce. Due to higher gold and copper prices, the company’s total revenue grew by 17% YoY to US$4,576 million.
• Earned Record Statutory Profit: Due to decent operating performance and higher prices, the company was able to report a record statutory profit of US$1,164 million, which is 80% higher than the last year.
• Rise in Free Cash flow: The company’s free cash flow stood at US$1,104 million in FY21, up 278% on FY20.
• Rise in Dividend: For H2FY21, the company has declared a final fully franked dividend of US 40 cps, up 129% on pcp. This took the total FY21 dividend to US 55 cps, equating to a 41% payout of FY21 free cash flow. The final dividend has a record date of 27 August 2021 and a payment date of 30 September 2021.
• Increase in Cash Balance: As at 30 June 2021, the company had cash and cash equivalent of US$1,873 million, up 29% from US$1,451 million as at 30 June 2020.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Metrics:  Gross margin for FY21 stood at 38.7%, up from 34.5% in FY20. EBIDTA margin for FY21 stood at 51.4%, up from 46.3% in FY20. Current ratio for FY21 stood at 2.98x, up from 2.9x in FY20, demonstrating that the company has improved its ability to pay short-term obligations. Debt to equity ratio for FY21 stood at 0.17x, down from 0.24x in FY20.

Key Metrics (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 33.99% of the total shareholding, while the top four constitute the maximum holding. Allan Gray Australia Pty Ltd and Van Eck Associates Corporation are holding a maximum stake in the company at 9.87% and 5.02%, respectively, as also highlighted in the chart below: 

(Source: Analysis by Kalkine Group)

Latest Developments:

• Change In Mechanics of NCM’s Director Appointment Right: In February 2020, Newcrest Operations Limited, one of the subsidiaries of NCM, had entered into a Subscription Agreement with Antipa Minerals Limited (ASX: AZY), a mineral exploration company, as part of the Wilki project farm-in and share placement transaction. As per the agreement, NCM had the right to appoint an appropriately experienced nominee as a director of AZY, if it retains over 9.9% interest in AZY. On 24 September 2021, AZY notified that it has agreed to amend its subscription agreement with Newcrest Operations Limited. As per the amended agreement, NCM can retain its director appointment right if its shareholding in AZY falls below 9.9%, but not below 7.5%.
• Van Eck Associates Corporation Became Substantial Holder: Recently, Van Eck Associates Corporation became a substantial holder in the company with 5.02% voting power. Van Eck Associates Corporation holds around ~41 million ordinary shares of the company.

Key Risks:

• Commodity Risk: The company is exposed to the risks related to the fluctuations in the price of gold and copper, as it could impact its financials.
• COVID-19 Uncertainties: The company is exposed to the uncertainties surrounding the impact of COVID-19 pandemic, as it could impact the company’s operations.

Outlook: Looking ahead, the company is focused on finalising key Pre-Feasibility Studies for Red Chris, Havieron and Lihir. The company is also planning to bring Havieron and the Red Chris block cave into production as soon as possible. For FY22, the company expects its gold production to be in the range of 1,800 – 2,000koz and copper production be in between 125 – 130kt. The company’s exploration expenditure in FY22 is expected to be in between US$150 – US$160 million.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last three months, the stock has corrected by 13.42% and is currently trading lower than the average 52-week price level band of A$22.08 - A$32.440. The stock has been valued using EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company can trade at a slight discount to its peers, considering the uncertainties surrounding the impact of COVID-19 pandemic and fluctuations in gold price. For the purpose of valuation, peers such as Evolution Mining Ltd (ASX: EVN), Northern Star Resources Ltd (ASX: NST), Gold Road Resources Ltd (ASX: GOR), etc., have been considered. Considering the company’s improved financial performance in FY21, rising cash balance, decent outlook, current trading level and valuation, we give a “Buy” rating on the stock at the current market price of $22.21, down by ~2.71% as on 28 September 2021.

NCM Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Technical Indicators Defined: 

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

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