NCM 0.90% $27.97 newcrest mining limited

newcrest on a high

  1. 9,081 Posts.
    "Newcrest on a high

    By: Peter Gonnella

    Posted: 2003/08/05 Tue 14:24 ZE2 | © Mineweb 1997-2003

    KALGOORLIE – Analysts are ga-ga over reinvented Aussie gold producer, Newcrest Mining [ASX:NCM], which has surged a billion dollars in value since last year’s Diggers & Dealers Forum.
    The company “was firing on all cylinders” commented one analyst following the release of its latest operational results, beamed Newcrest’s general manager corporate affairs, Peter Reeve. He told D&D conference delegates today (Tuesday) Newcrest had come a long way in the past 12 months, during which its market capitalisation grew from A$1.8 billion to A$2.8 billion, with the redevelopment of the A$1 billion Telfer project progressing on schedule (for a September 2004 quarter production start-up), Ridgeway delivering a strong maiden full year performance, and exploration returning excellent results.

    How the worm turns. About six years ago the Melbourne-based miner was the gold market’s punching bag after its failed takeover attempt of Normandy Mining. In the ensuing period Newcrest was dogged by the exit of three managing directors, an awful hedge book and the closure of Telfer.

    But that’s all behind it now. Newcrest stock has reached new heights in the past few days as the commissioning risk attached to Telfer steadily reduces and as the toxicity in its hedge position evaporates. In addition, Reeve pointed out group cash and total costs had decreased for the sixth year in succession.

    According to JP Morgan analyst Geoff Breen, Newcrest’s cash costs (A$217/oz) are now amongst the lowest in the worldwide cost curve. “The share price recognises much of this improvement,” he said. “Newcrest is a very different company from just six years ago, and will be very different again in a year’s time with Telfer back in production.” Telfer is forecast to produce an average 800,000 ounces of gold and 30,000 tonnes of copper per annum over a projected mine life of about 24 years, and Reeve revealed there was further exploration upside that could potentially add to the existing 18.4 million-ounce Telfer gold reserve.

    Both Breen and Credit Suisse First Boston’s Michael Slifirski didn’t think Newcrest was currently expensive relative to the premiums its global peers attract, so long as Telfer didn’t fall in a heap. Breen revised his 12-month target price for Newcrest to A$11.80 per share on the back of earnings upgrades for the current and next financial years (FYs). This places Newcrest on a PE of 15 times and premium of 50 percent to its NPV of A$7.76, based on JP Morgan figures. “We believe that these ratings are very reasonable for the only large, quality gold stock in Australia,” Breen said. “Major North American golds generally trade at PEs ranging from 20-40 times and 200-300 percent premia to similarly calculated NPVs.”

    They also felt the far more positive outlook (than the bad old days) and significant discount to potential acquirers have boosted Newcrest’s corporate appeal. Newmont Mining paid a 100 percent premium above JP Morgan’s NPV for Normandy of A$1.10, while Placer offered an initial 50 percent over the AurionGold NPV. “A 50% premia for Australia’s last quality, major gold company is not especially demanding,” Breen mused.

    Slifirski has increased his Newcrest profit estimates for 2003/04 and 2004/05 to A$109 million and A$287 million respectively and Breen A$89 million and A$262 million for the corresponding FYs."

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