Another Quarter of Meaningful Operational Improvement for Newcrest Newcrest's second-quarter fiscal 2014 production builds on the improvement in the first quarter. The company has now strung two much needed quarters of improvement together. Both production volumes and cash costs were better than expected. Newcrest says it's on track to meet the top of the production guidance range for fiscal 2014 of 2.3 million ounces. Further, costs are tracking towards the bottom of guidance, though we would not be surprised if the company does better on both production and costs. We remain encouraged by the cost reductions and productivity gains.
Our fiscal 2014 earnings forecast falls marginally due to a lower forecast gold price for the second half. With earnings already at historically low levels, the reduction has no impact on our AUD 22 per share fair value estimate. Key long-term assumptions remain AUD 1,100 per ounce gold and AUD 2.50 per pound copper (2013 dollars, inflated at 2.5% per annum).
Newcrest remains undervalued. The long reserve and resource life is a key differentiator to peers and supports valuable future growth options. The market is disinterested in the value of those options, but we don't believe this can continue indefinitely. Assuming humans continue to covet gold, exploration will be required to find more. Applying an industry average replacement cost of USD 30 per ounce, Newcrest's gold reserves alone account for one-quarter of its market value, half if the cost to find the copper is included.
NCM Price at posting:
$9.58 Sentiment: Buy Disclosure: Held
