Stockbroker DJ Carmich-ael Pty Limited has rated
Newcrest Mining Ltd a buy for its “enormous resilience” in the current tough gold mining environment.
According to the stockbroker’s research report, Newcrest is the only major gold company to outperform the All Ordin-aries Index in the past three months as investors position themselves for anticipated growth in earnings over the next few years.
“We believe a growing production profile, declining cash costs combined with an open share register makes Newcrest an attractive takeover proposition for major gold companies,” the stockbroker said. “Newcrest is our favoured entry for invest-ors wishing to gain exposure to a quality gold producer.”
Among the reasons given by DJ Carmichael are that Newcrest is well hedged against the currently depressed gold price of US$257 per ounce, with hedging in place covering 6.9 million ounces. This included about 5.6moz at an average deliverable price of $64l/oz and about 1.3moz at US$456/oz.
Production is also forecast to expand from 450,000oz to 1moz over the next three years as Cadia, Ridgeway and Goso-wong move into production.
“We anticipate during this period the average cost of production will fall to about $300/oz, from current levels of about $324/oz,” the broker said.
Another plus is that management has a clearly defined
strategy to increase production from several new low cost mines, which will have the effect of lowering average costs, and maintaining a high level of option cover on forward gold production.
This will protect earnings from the higher cost mines without limiting the potential benefits that come from any substantial rise in the gold price.
