Thursday 28 January 2016 by Alen Golubovic Company updates

Newcrest posts strong December quarterly performance

Newcrest has posted a strong December quarter performance, driven by production and cost improvements. Production guidance for FY16 remains unchanged at 2.4m – 2.6m ounces of gold

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Gold production in the December quarter was up 6.4% on the prior corresponding quarter to 620,891 ounces, driven primarily by increased output at Lihir and Telfer but partially offset by a five week outage at the Cadia mine. The main mill at Cadia is back to full operation following the outage and the company was able to achieve a strong processing rate post the outage.

The company’s all in sustaining cost (AISC), improved by 3.6% to US$757/ounce. For the quarter, the company delivered an AISC margin of US$343/ounce or in broad terms it achieved a margin of 31% over its cash costs.

The biggest improvement in Newcrest’s operational performance has come from the troubled Lihir mine in Papua New Guinea, which achieved a significant 19% reduction in its AISC to US$803/ounce. The company surpassed its 12mtpa throughput target, producing at an annualised rate of 12.4mtpa for the quarter.

In the gold sector, we continue to support Newcrest as our preferred name. Given the current uncertainty in global markets, gold as a commodity has performed well and is currently at three month high levels. A potential further decline in equities and market uncertainty about global growth is a good environment for gold because of its defensive, ‘safe haven’ status.

While Moody’s has placed Newcrest’s credit rating on review for possible downgrade, we believe it is unlikely that Newcrest will be downgraded as a result of the review, given its strong cost position, high 31% AISC margin and its progress in debt reduction. The recent quarterly report, in particular the improvement in performance at Lihir, is further supportive of Newcrest maintaining its current investment grade rating.

Please contact your FIIG representative for further information on the Newcrest USD bonds. Available to wholesale investors only.