Newcrest Shares (ASX NCM) will sell its 89.89% interest in Bonikro to a consortium for $72 million in cash and $9 million net smelter royalty on the future lease. The sales price is reasonable, compared with NPV on this non-core asset of $87mn. The effective date of the transaction is 1 October 2017 and NCM shares will complete this transaction in March 2018.
About Newcrest Mining Limited
Newcrest Mining Limited is the world’s sixth largest producer of gold which engages in the exploration, mining and sale of gold and gold-copper concentrate. As at 31 December 2016, NCM owns 130 million ounces of gold, 19 million tonnes of copper and 95 million ounces of silver.
Free Cash Flow Positive For All Sites In FY17
NCM shares generated free cash flow (FCF) of $739 million. Cadia and Lihir are two of the world’s top ten gold deposits and became the main contributors of Newcrest Mining, reaching FCF of $502 million and $353 million respectively.
ASX NCM Exceeds Production Four Years In A Row
Newcrest shares exceeded Group production four years in a row; producing 2.38m oz gold and 84kt copper in FY17. Sales revenue increased by 6 percent from FY16 to FY17, for a total of $3.5 billion in FY17. All-in sustaining costs (AISC) increased by 3 percent to $787 per ounce in 2017.
Net debt was reduced by $2.3bn from FY13 to FY17, leverage ratio to 1.1x and gearing to 16.6 percent. Total injury frequency rate was reduced by 10 percent in FY16.
P/E ratio is Forecasted To Face Significant Drop
PE ratio of NCM is forecasted to fall from the current 43.06 to 11.9 (2020 estimate). EPS is forecasted to increase from 0.43 to 1.43. NCM shares are forecasted to pay a dividend yield of 0.9 percent this year.
NCM’s Liquidity Deficit Will Be Overcome In 2018
Mining companies have substantial capital expenditures and the ability finance these mining operations is an important factor. Hence, the quick ratio is a strong fundamental indicator of a company’s basic financial health.
In the mining industry, a quick ratio values higher than 1 is the minimum acceptable value. Newcrest shares have a quick ratio below one, indicating low liquidity. However, forecasts show that NCM will be able to overcome this issue, with their quick ratio expected to rise from 0.92 in FY17 to 1.04 in FY18.[wd_hustle id=subscribe-now type=embedded]
ASX NCM Return On Equity Expected To Increase Significantly
Company’s ability to reward its shareholders can be reflected by ROE. Newcrest Mining shares ROE is forecasted to rise from 5.80 in FY17 to more than 8.5 by FY19.
Average ROEs in the mining industry are between 5 percent and 9 percent, while the best-performing companies produce ROEs around 15 percent. NCM’s ROE is within market expectations of between 5 and 9 per cent.
Newcrest Mining Limited has had a stellar few years. With a recovery in their quick ratio and much higher ROE, NCM looks to be a solid gold miner going forward.
Disclaimer: MF & Co. Asset Management and the author do not own Newcrest Mining shares. Research contributions by Chen Yu, Jiangshu Xiang, Yanhua Chen and Guanyan Wu.
Are you still looking for the best stocks to buy in 2020? We've put together a free report on 5 stocks that we think are the best buys on the ASX right now. Download it instantly here.
Want to join the discussion? Head over to our Facebook group and join 3,500+ other investors and traders discussing everything stocks and stock market related.
This is general advice only. MF & Co Asset Management has not considered your personal financial needs, objectives or current situation. This information is not an offer, solicitation, or a recommendation for any financial product unless expressly stated. You should seek professional investment advice before making any investment decision.