opening price, page-9

This from Macquarie this morning:

Newcrest
Earnings upgraded

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Volatility Index: high
Recommendation: Neutral


Share Price $31.00

Event

Newcrest (NCM) announced a $500m institutional placement at $27.00 per share (a 12.9% discount to the previous close), which we understand was extended to $750m intraday due to strong demand. It also announced a strong preliminary First Half 2009 adjusted net profit after tax result of $235m to $245m.

Impact

Use of proceeds. (1) To repay US$240m ($364m) of existing debt drawn down under around US$970m of bilateral facilities which mature in 2010; (2) accelerate the planned expansion of Cadia Valley and Gosowong; and (3) pursue growth opportunities.

Does NCM really need the additional funding? NCM was not financially distressed prior to the raising. However, the raising is opportune, noting the strong sentiment in favour of gold at present, equally strong support for gold equity issuances, and the still perilous state of credit markets globally. NCM's only other debt is US$350m of notes maturing post 2010 and we expect NCM's capital expenditure outlook of $2.8-3.0bn over the next three years to essentially be funded from internally generated cashflows. NCM continues to act prudently and decisively in the current circumstances to preserve its financial strength.

Not a strong upside catalyst. Although the raising lowers NCM's gearing by 10% to between 5-10% and clearly improves financial flexibility, the raising in itself is unlikely to offer a relief rally for NCM along the lines of the hedge book buyback we saw in 2007 for instance.

Appetite for paper. The North American senior gold miners have gone to the equity and convertible market for no less than US$2.4bn in the last two months aloneIn short, the market has shown a strong appetite for secondary issues from established and liquid producers.

Anyone else? The market is understandably likely to speculate that fellow ASX100 gold miner Lihir (LGL) may follow suit. LGL currently has zero debt, $64m in cash and a further US$250m in undrawn credit lines. We estimate aggregate capital expenditure of US$960m and operating cashflow of US$930m over the next three years. While LGL should be fully funded on its growth profile on current projections, LGL may nonetheless be similarly motivated.

Earnings revision

Financial Year 2009 earnings per share +1% to $0.90; Financial Year 2010 earnings per share -2% to $1.44; and Financial Year 2011 earnings per share -4% to $1.70.

Price catalyst

12-month price target: $30.00.

Catalyst: Completion of Cadia East feasibility study by calendar year end.

Action and recommendation

Maintain Neutral. We have long maintained that NCM is the Australian gold proxy by virtue of its unhedged, long life, diverse and low cost asset base, and superior liquidity. Our Neutral recommendation is a reflection of our valuation (1.9 times net present value) and relatively cautious Calendar Year 2009 gold price forecast of US$830 per ounce