ncm fundamental outlook and basic technical

Thought Id throw some analysis out there, fundamental, basic technical and marco as it related to NCM...no particular order...

NCM Current
Two company downgrades last year last minute didnt favour well with investors.....and two production downgrades so far this financial year is also not farring well with investors. Whils they have basically the same Five year plan, over the last five years they have failed to reach over 3M OZ as per previous plans and we are back at the same starting point. Long term investors have a risght to flee the stock at this time as the current five year plans look alot like the previous ones, lots of promises but in the end failure to deliver......this is an ongoing risks in investing in mining shares.

substantial Share Holders
If you look at the current list, the major players, Comm Bank, Fidelity and Blackrock all bought in big in the recap of 08 and bought into the plan, lots of people did, the plan has not worked out, thats a fact and they have been steadily reducing thier exposure to Newcrest mining, Fidelity looks to be the most active, they still hold a large amount and look to be a continual seller, doesnt look good for the SP in the near term becasue there simply is not enough liquidity in the stock to absorb the moves, so thier sell down will take a while imo

I would expect the comm bank with such a large shareholding to take investment profits as loan grow and earnings take a hit from a slowing oz economy, plus they can simply get a better return elsewhere..

PRICES OF THE PAST
Many are questioning the disconnect between NCM rising to 40 bucks a few years ago when they were making roughtly the same margin as today.........This is a trap IMO and totally irrellivant as you have to look at the time the marco environment at the time and the companies situation....

Back then the companies share price was rising on the following themes imo and why I was long at the time...

I 2007 was all about debt, and balance sheet, NCM balance sheet was terrible, the GFC had hit and it needed capital to get rid of gearing, get rid of its way way out of the money hedge book and capital to develop its mines to reach its five year target,,,even with the serious dilution of the time the shares rose becasue its balance sheet looked great with basically no debt, Gold was rising as we all expected huge hyperinflation with what many saw as simple money printing hitting main stream and huge 30 year mine life and constant resource upgrades.........Even with the dulution the share price rose

Flash forward a few years out and the mine life has quietly gone to 21 years and despite the huge resource upgrades, which is what resource companies use to prop up thier share prices to balance depletion, thier history of production has been very choppy and Mines like Telfer been a constant problem..

Flash forward to today, we have not reached 3M OZ, costs are rising substantially, Oil is not 40 dollars any more, wage cost inflation, production has been downgraded back behind where the company was projected to be before the merger..hence looking at the past price to guage where it could be is a dangerous trading trap......Id bet there are HUGE amounts of shareholders underwater...

Yield
Well we were all expecting huge dividends to be flowing by now, since the company was recapitalized, the hedge book removed so the company could get its hand on the increased margins, now that the company marged with Lihir to do a better job.....reality, div is increasing in % terms but it hardly makes up for the capital loss many would be sitting on and in reality doesnt cover inflation.....

Many used to say forget the DIVS its a GOld share you make Capital appreciation,,,wll thats true if you locked in and traded your investment at the high prices in the last few years,,if you didnt , Newcrest has and will continue to be a capital killer.....too many competing investments with substantially less volitility and substantially higher returns.........

Even at Thursdays closing price of 2557 the yeild was 1.25%, illustrating its value trap,,,yes the market looks forward nowdays and calculates yield and PE on forward estimatesbased on brokers targets, but I dont when looking at fundamental and the PE is still quite high...

Future EPS
Yes NCM had record EPS growth reported resently but since then it has taken on $1BLN in bonds so it now has a higher interest expense coming, its has spent money listing on the TSX and has increased its repair bill which will result in costs and there should be a writedown of the Lihir mine...they have to face reality imo... POG in AUD terms is also off the boil, oil is up and production is falling...so next half will not be as good as the previous half.....and when you see that production was supposed to be say 3M OZ and is now projected at 2.3M OZ thats an enormous drop in cashflow as expenses are increasing.....

Futures Divs
There is pressure by the likes of Blackrock for NCM to pay a much higher div or special DIV in AUG becasue they have the capacity to do so,,ie they have raised 1BLN in Bonds and have huge undrawns credit facilities still availiable....

IF they do it, which is certainly possible as Managment always want to lift the share price for thier own interests.....whilst it may pop the share price in reality it is basically borrowing to pay DIVS,,,,,ie it has cashflow but is not debt free so this would and should be seen by the Credit rating agencies as a NO no and thiey should lose their investment grade rating immediatley

Blackrock is only pushing this idea to get in some cash and in the end, if they do it their balance sheet will not be that great at all,,,it would the be very suseptible to any small negative Gold price change....

Gold PRICE
Who really knows where the Gold price is going these days, in the end its a very small market crowed by a lot of short term highly levered traders pushing the prices .

In 2008 the gold price rose as more and more people started taking an interest in GOLD....the consensus theories for why the Gold bull market would continue from my point of view were

Hyper inflation coming from QE in USA, China, Europe, Japan etc etc..........reality, inflation is not hyper at all.....this easing has merely just been a merigo round between the central banks and the banks to prop up thier balance sheets and given them all the chance to lever up again and go trading

"its required to be in a blanced portfolio as a hedge "
If you want to hedge you can buy a futures contract, if the market collpases then you maintain your store of wealth,,if the market goes up then is a right off, but as a trader its immediatley deductible, gold doesnt do that so imo there is much better ways to hedge......

"Gold will only fall with rising rates ,taxes or protectionism"

rates rising for soverigns, taxes coming in everywhere (OZ MRRT Carbon) and clear protectionism building world wide.....INDO 25Pc export Tax, nationalism mining interests over 51PC....

Lots of severly financially strained countries sitting on massive profits in thier gold holdings, if they wake up imo and unlock thier profits for the benefits of thier populations the world economies might be alot better off..

Australia is a classic example, Costelloe sold the countires gold and we have one of the lowest debts per country, and have weathered the GFC better than most,,,,yes the price is higher,,but the opportunity cost has been great for the OZ economic balance sheet,,,,,lower debt, AAA remains, banking sector stronger than peers etc........Someone, some country will take advantage of price at some stage regardless of the central bank cartel of selling agreements to help thier people first imo..Spain for Example is sitting on 281 tons as of Feb 2012. with 24PC (yes 24Pc) offical unemployment and 50Pc youth unemployment, they need to stimulate and they could unlock the profit sitting in the vaults to improve what is obviously building social unrest and falling living standards........

Gold and the Market Rally,,,,
Lots of specaltion about more QE, LTRO 's etc,,,fueling an amazing rally in equities.......if the rally is to continue and all is good then why are investors going to be driven into gold near term when they are being forced to seek yeild...I cant see that momentum trade continuing on the basis of the theory.....QE has done nothing to stumuate loan growth and returns latley in Equities have been far greater than gold......

THe MErger
SMith said he would never buy Lihir becasue of its performance and location risk........

What did he do along with the board,,went out and bought it as Gold fever broke out and cashed in at 40 plus...

9-10 mergers do not end up working or increasing shareholder wealth over the long term.....time eventually judges merger glossy forecasts,,,,in NCM's case, production has not been what they forecast, sysnergies have not come through as they need now to spend another 200M not forecast etc,,,,,,,and the cost of all these problems, yeah some increases in earnings on one side and a share registry that double..net gains for this exercise for long term investors has been negative....

MERGER was for the BENEFIT of INSIDERS ONLY IMO and remains a seriosu stain on Managment and the Corporate Advisors invovled

I said it at the time and Ill say it again, ASIC should have investigated this enitre process.....

LGL and NCM met in FEB and the offer was made......LGL and NCM did not disclose this information to the market for a couple of months,,,during that time LGL with no CEO, problems in Ballrat and Lihir, LGL's share price and especially options call buying grew, NCM which had good production and a rising gold price saw its share price fall much to the frustration of many traders and investors and many sold.....

Then out of nowhere, NCM announces its going to buy Lihir after it said it wouldnt, reviels a meeting it held months prior,,,,result, LGL huge positons in call options made over 1000PC, directors at Lihir got huge payouts and the insiders absolutley cleaned up along with the advisors...

NCM share price then poped as they released a forecast of how producton , sysneriges and costs would benefit shareholders,,,,,,,,,,,fastforward to today, ,,,,sysnergies gone, costs are double what was forecast of the merged group and production,,well thats way off too..........Directors of LGL even got the NCM dividend....very bad corporate behaviour imo

It should also be noted there was a 200000 oz miss by lihir if memory serves me correctly just prior to the take over,,,and a 200000 ish uplift in NCM just following it in DEC following the merger, this cranked the SP as the merger seemingly looked to be a remarkable move,,,,I think given the talks occured in FEb and not released till a few months later,,,this was another "deal" to make things look great

NCM current headwinds
Issues in PNG, government not stable at all and development of the asset is years away and no guarantee the next regime will accomodate NCM

INDO, export taxes 25Pc , introducted as a protectionist mesure resently

Divergence of 32PC of interest required.....NCM disputes this will affect its operation becasue it has a "contract of works" till 2029 but they are going to face the export tax and the INDO government didnt like NCM or BHP et All response and will do whatever they need to claw back thier contract it appears

AUST: Carbon tax
The ultimate cost of compliance for this tax is unknown, but if the miners are going to have to monitor and report and pay on its Carbon output at 23/tone, the costs are going to be high, can you imnage the cost of doing this on top of the 23/ton tax they are going to have to pay...its got to be more than the 3PC estimated by the company.........

How much equipment do you need to buy and pay to install to monitor the mines plant, how many people are then required to work out how much carbon is coming out net as a result of truck movements, upgrades, repairs, imports....wow,,,,absurd tax but the costs near terms will be high as they ramp up to cover the regulation imo , this is a cloud over earnings going forward

TSX listing
Remember the listing how it was going to unlock the value fo NCM and send its shares to 40-50 dollars as smarter more understadning and knowledgible gold investors who live in Canada rush to the shares,,,,didnt happen, but there would have been a big cost to put the deal together and there is going to be ongoing costs at the espense of future earnings going forwards

THE BILLION DOLLAR BONDS
Great fan fair a few years ago, big multi Billion development of Cadia, NSW government involved, lots of Jobs coming, great for the economy etc etc.....

At the time I questioned how they were going to pay for it and suggested that they would need a cap raising....the share price also saw pressure as others obviously beleived the same thing.....NCM press release RESPNSE to market concerns at the time was they would and could easily pay for the enormous expansion of Cadia East from exising cashflow............

fastforward to 2012 and suprise suprise,,,NCM goies out and BORROWS $1BLN bacuase it could ever pay for its development program from cashflow, company forecast shown to be overstated and unrealistic again.....and one billion at 4.25PC PA is alot of future gold needed to be dug out of the ground going in interest payments

BLAME it on the RAIN
Now the company is saying it is going to invest to make its mines at Cadia and Hiddent valley better able to cope with rain............

Capex budget was just increased to 2.4Bln from 2.2, I assume that is just the inclusion of the $200M lihir refit, I cant see any money for all the new specilist pumps, massive open pits flood in rain and the deeper they go the more expensive it is to lift the water out and make it safe for machinery to operate, I cant see NCM suddenly spensing some money to ensure rain doesnt affect production going forward, that is absurd

RESENT STATMENTS BY MANAGMENT
Lihir 700K 900K OZ by 2013,,well that means nothing really happening in development there since the merger, Lihir was doing that with no CEO and problems, looks to me like NCM didnt really bring any "better managment" to this mine

Copper Production Downgrade....NCM really got into the GOLD Copper Play a few years ago, it was a sign of diverging away from the volitility of being a total GOld play, plenty of discussions here and movement in the share price on the copper price moves...now seemingly with lower copper credits costs will increase, affecting future margins and EPS

Improved Performance at Hidden Valley seen this QTR
Well of course, it was closed due to a land slip

Cadia East Project Ramp up Slowed
If this is the case then one has to assume that thier new targets are going to be delayed

BROKER DOWNGRADES
Note they are downgraded to a hold, there are no SELLS as reported in the MEdia,,,,,,Big brokers rarley put sells on big ASX 20 stocks..

The only one that seems to have any credibility was CSLA who cam in last month with the same thoiery as morning star had at 38 and 36 and 34,,,oversold, big production ramping up etc, price target 37..at least that broker quickly admitted they were wrong given production and other manamgnet problems, revised their target right down....


NEWCREST SEES EXISTING OUTPUT UP AVE 5-10% A YEAR OVER THE NEXT 5 YEARS

Heard this every year since I started trading this company, reality is they are now saying they are going to reach a target in 5 years we are supposed to be at today......they have missed cosistantly how people can get suckered into this again is beyond me...thier forcast on everything from production, mine expansions, costs have been wrong since 2008 and you should be careful to in taking thier projections today , reality is that mining for gold takes alot longer to realise and is alot harder to do than what you put into an excel presheet that assumes perfect execution....

Basic TECHICALS

I think you need to step back from the 1 min graph unless you are a super short term trader having a go.

Daily NCM 50 100 200 clearly broken, support lost ATM until catalyst for improvment found, clear as day downtrend relfecting the fundamentals of the company imo

NCM WEEKLY
FIB RETRACMENTS from high to low, closed below 38.2 % at 2571 so next support on this tech traders favourite would be 22.20 ish, a fall below that line and chances are it could retract to below 18....

Note support level of 30 clearly has failed all the 50-100-200DMA on weekly gone, again probably reflecting the performance of the company and what things look like in the future......

Note previously the wild swings once it broke the 38.2Pc retracement, a traders nightmare if you get on the wrong side

NCM MONTHLY
50DMA ave Broken
100 DAM Broken
200DMA sitting way way down below at just under 16

Previous support around the 20mark

Using FIBs on this chart, , broken 38.2PC retrace of old high low and next support 25, if not again just over 20 which is also a simple support line

NCM QTR
Price consistantly lower, so downtrend in place
Again 20 looks like support and if it can bounce from there then the head and shoulders would be complete

NCM was 2096 in June 07, since then it has expanded its register dramatically, failed to meets its production 5 year plan, got more debt now (even though as a % of assets its gearing is low) costs are much higher than forecast and production much lower than where it was forecast basck then, it rose to its high in anticipation of those things coming off and is simply retracing as it is basically right back where it started, lots of new mines an assets but not lots of huge returns to shareholders.......

Trading Targets
short Terms
I think in light of the fundamentals, size of the shareholders on the register selling, massive leverage in the system by short term punters,,,, (GFC for exapmple margin loans max 50Pc at comsec now 70PC, thats an increase of 40PC) NCM should fall back to 20 ish but with lots of wild swings....just when you think your on a winner, it goes before your eyes the following day......trust me I had to live through the moves from 18-25 before and as per the chart they were brutal

MEdium Term 20-25 given that the company is not going to collpase is in production and there is always expectation proping up miners who say production is around the corner..

CATALYST FOR A RISE
2 or three QTRS Delivery on guidance and on time and on forecast production delivery at Cadia, managment announcing a special DIV in AUG

A solid period 3-6 months of NCM consolidating in a very tight range indicating the traders and leverage is out and investors are back in..

GOLD PRICE
AUD Gold price needs to go back up for margin expansion and to cover the lower than delivered futures production.....

Headline on expiry day in the USA looks good for monday but in reality, AUD price is 15 bucks lower than Friday in trade and the AUD is suddenly looking real good comparted to other wild swinging currencies, expecially with all the problems in SPAIN....

CEO resently screamed AUD is killing is, and its now a couple of cents higher and AUD POG lower....

CONCLUSION
NCM will remain a day traders paradise in this environment and many will be crushed by the wild swings.......plenty have tried at 40 - 36 30 and 28 and many are still holding on by the skin of their teeth,,MR market knows it and many will be flushed out and left by the side of the road with the others

LONG TERM, if you were in in 2003 you are still doing really really well, so any small movement down in price will cost a fortune of forgone profits,,might want to buy some protection

This is not a buy for investors ATM, your time will come when the company starts to deliver and the short terms are gone and the I think there are plenty of them trying to pick the bottom right now....so be cautious and if you do get it right, take your trading profits as I can tell you, in NCM they can disappear for no seeming reason in a session..

Good luck all,,sorry for the rant,,was just doing some boring Saturday research and thought I chuck it out there..