NCM’s $30bil valuation comes mainly from Cadia, which is an amazing asset but watch out for what’s coming in the next few years. AISC of $160 per ounce is going up, perhaps significantly as production reduces by 10-20% in FY2021. Refer to the briefing book, grade will decline from 0.8 to just 0.4 post 2023, reducing production by about 30% even after investing $865m for Cadia expansion. That’s a significant decline and I think investors are starting to price it in.
Lihir has posted AISC above $1200 for three consecutive quarters. Until it can show more consistency below $1000, there will always be scepticism, especially when management is deemed to have consistently under delivered.
EVN has 10 years reserves which I feel is good enough to be considered investment grade. NCM’s reserves are nice to have but free cash flow in coming years is probably more valued than the present value of reserves in 20 years time. Even Barrick or Newmont have reserves for 10-12 years only and investors have valued them at a premium due to their scale and strong cash generation.
EVN’s optimism comes not just from the 100k ounces increase over 3 years. Management said AISC is expected to decline post 2023 which is opposite what NCM will be experiencing.
Not trying to promote EVN but I do feel that there are better buys than NCM at current prices.
NCM Price at posting:
$34.16 Sentiment: Hold Disclosure: Not Held
