IG - First take on the NCM numbers

IG - First take on the NCM numbers

Newcrest Mining was expected to disappoint compared to the previous quarter, having already downgraded guidance to 2.0 to 2.15 million ounces for FY2012/2013. These expectations have been realised today.

Headline production numbers in gold were stronger, up 4% on the previous quarter to 514,421 ounces versus 492,906 ounces in December. However, this is where the good news stops unfortunately.

Copper production was down 4.5% to a touch above 19,000 tonnes, with silver off 18.8% on the previous quarter at 401,143 ounces.

The biggest issue for NCM we have been alluding to over the last few months is cash costs, and there is no escaping them now with the plunge in the gold price. Quarterly cash cost ballooned by 9.9% to A$799 an ounce, while total production cost jumped 5.6% to A$1086 an ounce. These costs are based on NCM managing to achieve an average gold price of A$1584 an ounce, which is a 4% drop on the December quarter. What price will NCM manage to abstract this quarter is a question of speculation, but gross cash margins dropped 15% this quarter alone to A$785 an ounce. A direr crossover is on the cards here.

Copper and silver are in the same boat, with Lihir and Cadia East ‘performing to expectation’, meaning they are still spluttering along. The following big questions need to be asked:

Is it still profitable to plough ahead with the underperforming mines? Do we slash and burn to rein in the bubbling cost? Do we start to abandon or sell out of non-core assets?

NCM’s management has to ask themselves these questions, and fast. The rates of return are shrinking by the hour, and the bleeding has not stopped. With gold firmly in a bear market, the bleeding looks set to continue at NCM, as investors see value elsewhere.

EVAN LUCAS
Market Strategist
www.igmarkets.com

ENDS

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