Newcrest (NCM)

By Jason Fittler

NCM was formed in 1990 from the merger of Newmont Australia and BHP Gold. A significant proportion of NCM's gold production is sold as gold in concentrate and the company benefits from copper credits derived from concentrate sales.

Newcrest's concise strategy is to develop large, long-life operations that are low on the cost curve.

We base our target price on the long-term share price premium of 40% to our NPV for NCM and we raise our target price to A$41.49 from A$41.28ps.

We see potential upside to our earnings forecasts and valuation based on the potential project development pipeline, but we have chosen to take a relatively conservative approach until feasibility studies are completed.

The CFO indicated that NCM finished 2009 with about 0% gearing. Combined with cash flow from existing operations and a US$600m undrawn debt facility, we believe this leaves the company well placed to develop existing mines.

Our modeling of the site costs appears to show that the changes have been gradual and sustainable rather than one-off items. The A$ is having a positive impact on consumable costs but in other areas a small amount of capex on plant appears to be delivering increased throughput and a reduction in tail grades (improved recoveries).

At below $32 Newcrest is a good short term trading buy chasing a 10% bounce or a great long term hold stock look to extract full value if the stock hit $40.

Is Newcrest an opportunity for you? To find out, call us on 4771 4577.