Newcrest growth plans intact, maintenance weighs on first-half output

Newcrest (ASX: NCM) faced numerous challenges in the first-half including the maintenance at its flagship Cadia mine, higher freight costs and the unfavourable impact of a stronger Australia dollar. 

Nevertheless, the company has taken a “big step forward” in its growth agenda, advancing both organic, M&A and exploration initiatives. 

Financials at a glance: 

• Gold production of 833koz, down -20% 

• Revenue of $2.4bn, down -21% 

• Underlying profit of $413m, down -46%

• Interim dividend of 10.4 cents, down -46% 

• All-in sustaining cost of US$1,194/oz, up 23% 

• Realised gold price of US$1,733/oz, down -5%

The net profit result came in slightly below Bloomberg estimates of $442m.

Long-term growth intact 

“The depth and quality of our global organic growth portfolio was demonstrated through the announcement of the findings of the Cadia PC1-2, Red Chris Block Cave, Havieron Stage 1 and Lihir Phase 14A Pre-Feasibility Studies,” said CEO Sandeep Biswas. 

“Each of these studies indicate excellent rates of return and we are projecting a material growth in our operating margin and cash flow over the next decade.”

M&A kicker 

“Strategic, value-adding M&A has been a feature of our growth in recent years and we are also looking forward to completing the Pretium Resources transaction this quarter and adding the world class Brucejack mine to our unrivalled portfolio of assets,” Biswas said. 

Newcrest expects the addition of Brucejack to drive a circa 16% and 13% for FY21 gold production and earnings respectively.

Guidance reaffirmed 

Newcrest said that it remains on track to deliver its full year production following the completion of Cadia's major planned maintenance in the September quarter. 

The Group expects to deliver 1.8m to 2.0m ounces of gold, compared to 2.1m last year. 

All-in sustaining costs are forecast to remain flat, however costs associated with managing covid inch higher to $50-60m, up from $35-45m estimated at the start of the financial year. 

Initial broker thoughts 

Ord Minnett’s initial assessment is that the result has topped forecast expectations. 

The -46% decline in interim dividends stood out as a surprise and well below broker estimates. 

Ord Minnett reiterated a Buy rating with a $29.00 target price (20% upside).