Newcrest Mining HY21 Results (ASX: NCM)

Newcrest Mining HY21 Results (ASX: NCM)

Newcrest Mining (ASX: NCM) has reported its first-half results for FY21. We take a look at the company’s headline figures, key commentary and guidance outlook, plus review the share market’s reaction across the trading day.

 

Headline result

In its first-half results published this morning, Newcrest Mining has touted a record free cash flow, as well as a significant increase in earnings.

The gold miner announced that statutory and underlying profit was up 134% and 98% respectively on last year’s comparable period, totalling US$553 million.

In light of the company’s earnings and cash flow, Newcrest has declared an interim dividend of US$0.15 per share, fully-franked. The ex-dividend date is Thursday, February 18, with payment to follow on Thursday, March 25.

The market responded positively to the company’s results, helping shares in NCM rise 4.1% to close at $26.22 per share.

 

Key commentary

Newcrest delivered earnings per share 121% higher than the prior corresponding period, with growing margins proving the key catalyst. Across its operations, there was a 48% increase in the All-In Sustaining Cost (AISC) margin, which came in at US$842 per ounce.

Group production for gold was down 2%, however higher gold prices, and a modest bump in copper production underpinned the result. The realised gold price across the period was US$1826/oz, which was US$380/oz, or 26% higher than the first half of FY20.

Currency headwinds, with the AUD/USD rising 6%, were offset by the extent of the appreciation in gold prices, however, the AUD/USD has since increased well above the average exchange rate of 0.7225 in the half. Other headwinds included lower gold sales from a minor cut in production, COVID-19 related costs, higher royalty costs and increased depreciation expenses.

Nonetheless, in addition to higher gold prices, there were also operational improvements at some of the miner’s sites. At Cadia, higher copper production was one tailwind supporting higher earnings. Meanwhile, the Red Chris Project also showed improved performance across a full period of six months.

Newcrest’s record free cash flow came in at US$439 million, signifying a major turnaround from the US$729 million in negative outflow recorded in 1H FY20.

In lifting its interim dividend 100% to US$0.15 per share, the company has also adopted a new dividend policy. As part of the changes, Newcrest will now seek to target 30-60% of annual free cash flow as a dividend payment to shareholders, which is substantially more than the previous target ranging between 10-30%.

Beyond the free cash flow being generated, this change in dividend policy has been facilitated by a 20% increase in the company’s cash and cash equivalents on its balance sheet, and a 47% drop in net debt, combined cutting Newcrest’s gearing level to 3.3%.

 

Guidance outlook

Newcrest has maintained its group gold and copper production guidance figures for FY21.

The company does anticipate, however, that gold production will come in at the top end of guidance, although subject to ongoing operational performance and outside factors amid COVID-19.

The company also announced today that its Red Chris Project has received regulatory and funding approval, allowing it to already commence construction, with initial resource estimates due in March 2021 and a Pre-Feasibility Study in the September quarter. Elsewhere, stage 2 of the Cadia Expansion Project continues. Work done as part of the Lihir Mine Optimisation Study is part of the company’s aspirational goal that it may become a 1Moz+ per annum producer for 10-12 years from FY23, at mill throughput rates of about 15mtpa.

Finally, Group AISC expenditure guidance is also forecast to be at the top end of the original guidance provided, subject to an AUD/USD rate of 0.77 and spot copper prices of US$3.50 per pound. A boost in gold production at Telfer and Cadia is expected to drive this result.

 

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