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Newcrest's golden return for shareholders

Anthony Fensom  |  13 Feb 2017Text size  Decrease  Increase  |  

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Gold miner Newcrest Mining (ASX: NCM) has rewarded shareholders for its improved fortunes, restoring its interim dividend after profits doubled in the six months to 31 December.

The Melbourne-based company grew revenue by 17 per cent to US$1.8 billion, while statutory profit surged by 131 per cent to US$187 million thanks to higher gold prices, higher production volumes, and lower operating costs and depreciation expenses.

Newcrest produced 1.23 million ounces of gold, up 2 per cent, with an average realised gold price of US$1,277, up 15 per cent.

Copper production increased by 26 per cent to 48,899 tonnes, driven by increased sales from its Cadia and Telfer mines, although the realised copper price was virtually flat at US$2.30 per pound.

The company's all-in sustaining cost was unchanged from the prior period at US$770 per ounce.

Underlying profit expanded by 333 per cent to US$273 million, in line with analyst estimates, while earnings before interest, tax, depreciation, and amortisation increased by 44 per cent to US$783 million.

The company cut net debt by 9 per cent to US$1.9 billion, with its gearing ratio dropping to 20.8 per cent. Free cash flow increased 2 per cent to US$258 million, with all operations free cash flow positive before tax.

After not paying an interim dividend the previous year, Newcrest declared an interim unfranked dividend of 7.5 US cents per share, payable on 28 April.

Newcrest chief executive Sandeep Biswas said he was pleased with the company's operational performance, with Lihir achieving its target mill throughput rate of 13 million tonnes per annum (mtpa) and Cadia achieving new milestones.

"All assets continue to be free cash flow positive before tax and we continue to work to maximise their value potential through productivity efficiencies and cost reductions. We remain on track to achieve our annual guidance for the fourth year in a row," he said.

Biswas said the company's growth options remained on track, including its targeted 14 mtpa mill throughput at Lihir and an aspirational target of 17 mtpa, while Cadia's throughput exceeded nameplate capacity and it was progressing a prefeasibility study on a plant expansion.

"We continue to progress Golpu, brownfield exploration at Gosowong and Telfer, and the expansion of our portfolio of early entry exploration opportunities," he added.

For fiscal 2017, the company said it aimed to produce between 2.35 million and 2.6 million ounces of gold and 80,000 to 90,000 tonnes copper, at an all-in sustaining cost between $1.8 billion to $2.06 billion. Exploration expenditure is expected to range between US$60 million to US$80 million across its global portfolio.

Morningstar senior equities analyst Mathew Hodge described the result as "solid," with profits rising due to the stronger gold price along with improved performance at the Lihir and Cadia Valley mines.

"We knew Newcrest had the ability to up its returns to shareholders, the balance sheet and operations are now in pretty good shape, but it was good to see the US 7.5 cent interim dividend. Last year they only paid a 7.5-US-cent final dividend, with no interim," he said.

Newcrest shares rose following the results announcement. At 3.10pm AEST, the company's share price was up 19 cents, or 0.8 per cent, at $22.73.

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Anthony Fensom is a Morningstar contributor. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria. The author does not have an interest in the securities disclosed in this report.

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