{"id":58503,"date":"2011-07-22T12:08:30","date_gmt":"2011-07-22T02:08:30","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/07\/22\/newcrests-upside-potential-attracts\/"},"modified":"2011-07-22T12:08:30","modified_gmt":"2011-07-22T02:08:30","slug":"newcrests-upside-potential-attracts","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/07\/22\/newcrests-upside-potential-attracts\/","title":{"rendered":"Newcrest’s Upside Potential Attracts"},"content":{"rendered":"

\n\t– Newcrest<\/span> production in line, but costs higher
\n\t– Forecasts and targets trimmed
\n\t– Investment case remains favourable<\/span> given expansion potential<\/strong><\/p>\n

\n\t
\n\tBy Chris Shaw<\/p>\n

\n\tAustralia's leading producer of gold and copper, Newcrest<\/span> ((NCM<\/span>)) updated the market yesterday on both June quarter production and the size of the Wafi-Golpu<\/span> resource. The information provided largely met market expectations.<\/p>\n

\n\tGold production for the period was 700,000 ounces, while copper output came in at 20,100 tonnes<\/span>. The latter was a little below the expectation of RBS<\/span> Australia, the result being cash costs for the period were higher than had been anticipated.<\/p>\n

\n\tAs RBS<\/span> notes, a higher stripping ratio at Telfer<\/span> drove cash costs to $542 per ounce, this well above the broker's forecast of $470 per ounce. Helping push up costs were industry-wide pressures that drove up fuel, labour<\/span> and energy costs.<\/p>\n

\n\tTo account for the higher costs, earnings estimates across the market have been trimmed. JP Morgan lowered its earnings forecasts by 6% for FY11<\/span> and Deutsche Bank by just over 1%. Deutsche has also lowered FY12<\/span> estimates by 4% given the expectation input cost pressures will continue for some time.<\/p>\n

\n\tMacquarie forecasts have been trimmed by 2.8% this year and 3.3% in FY12<\/span>. On the back of the changes to earnings estimates, consensus earnings per share (EPS) numbers for Newcrest<\/span> according to the FNArena<\/span> database now stand at 143.8c<\/span> this year and 199.2c<\/span> in FY12<\/span>.<\/p>\n

\n\tThe changes to forecasts have resulted in changes to price targets, with JP Moran lowering its target to $47.00 from $49.00 and RBS<\/span> Australia to $42.29 from $43.74. The consensus price target according to the database is $45.79, down from $46.22.<\/p>\n

\n\tBut higher production costs are not the main story at Newcrest<\/span>, as the Wafi-Golpu<\/span> project continues to expand its resource base. Along with the production result, Newcrest<\/span> management announced a 75% increase to the Wafi-Golpu<\/span> resource to 26.6 million ounces of gold and 9 million tonnes<\/span> of copper.<\/p>\n

\n\tFurther increases are expected, Deutsche Bank noting the target is now 40 million ounces of gold and 15 million tonnes<\/span> of copper. Currently there are 41 drilling rigs at the project, so a further update is expected in conjunction with the profit result next month. <\/p>\n

\n\tBy the final quarter of this year a pre-feasibility study should be released, RBS<\/span> expecting the focus will be on grade optimisation<\/span> at the start of mining. Early grades of up to 1.5% copper and 1.2 grams per tonne<\/span> gold are expected, which RBS<\/span> notes is significantly higher than the resource grade.<\/p>\n

\n\tProduction in coming years should also receive a boost from a mine optimisation<\/span> plan at Lihir<\/span> Island, which also returned positive exploration results during the period. BA Merrill Lynch expects exploration and a general improvement in operations will act as catalysts for the share price moving forward.<\/p>\n

\n\tThe expected increase in production in coming years is significant, as Deutsche Bank sees potential for total production for Newcrest<\/span> to hit 3.4 million ounces by FY14<\/span> compared to an expected 2.7 million ounces this year.<\/p>\n

\n\tThe upside potential is enough for stockbrokers to remain positive on Newcrest<\/span>, the FNArena<\/span> database showing the stock is rated as Buy six times compared to two Hold ratings. One Hold comes from RBS<\/span> Australia, the broker downgrading from a Buy rating on valuation grounds as the share price is within 4% of its price target.<\/p>\n

\n\tThis is partly explained by RBS<\/span> having one of the lowest price targets for Newcrest<\/span>. If we take RBS<\/span> Australia and Citi<\/span> out of the equation, the average price target for the other six brokers in the database is $47.00. <\/p>\n

\n\tThe Buy case for Newcrest<\/span> is summed up by UBS, who remains of the view Newcrest<\/span> offers exposure to world class assets such as Wafi-Golpu<\/span> and value creation from a ramping-up of operations at Cadia<\/span> East, Rideway<\/span> Deeps and Lihir<\/span> MOPU<\/span> over the next 12-24 months.<\/p>\n

\n\tShares in Newcrest<\/span> are weaker today and as at 11.10am<\/span> the stock was down 42c<\/span> at $40.18. Over the past year Newcrest<\/span> has traded in a range of $32.36 to $43.71. The current share price implies upside of around 13% to the consensus price target according to the FNArena<\/span> database – with additional upside potential, say the above mentioned stockbrokers.<\/p>\n

\n\t <\/p>\n

\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

The quarterly production report by Newcrest showed costs are rising, but stockbrokers say the main story remains the potential of Wafi-Golpu and future production expansion.<\/p>\n","protected":false},"author":9,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6],"tags":[23,22],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/58503"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=58503"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/58503\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=58503"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=58503"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=58503"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}