Tuesday 26 July 2016 by Alen Golubovic Company updates

Newcrest reduces net debt by 27% over FY16


Newcrest published its quarterly report on 25 July

The quarterly report can be found hereExternal link - opens in a new window. Key points were:

  • Net debt reduced by 27% (USD0.8bn) over the year to USD2.1bn at 30 June 2016
  • Full year gold production increased 0.7% to 2.4m ounces. However, gold production in Q4 was down 6% to 598k ounces which was largely due to lower grade ore processed at Cadia and a previously announced geotechnical event at Gosowong, which suspended production
  • While the group’s all in sustaining cost (AISC) increased 8.9% to USD787/ounce over the quarter, the rally in gold prices allowed Newcrest to increase its AISC margin by 2.2% to USD469/ounce. This margin implies Newcrest would have generated around USD280m of free cash flow during the quarter

Newcrest has issued three USD bonds which are available to wholesale investors only. They are indicatively offered at the following yields to worst*:

Bond maturity Yield to worst Credit spread*
2021 3.30% 210bps
2022 3.45% 220bps
2041 5.62% 380bps

*bps = basis points

While yields on Newcrest (BBB/Baa3; stable/stable) have tightened since the start of the year, the bonds still show good value versus similarly rated gold mining peers. For example, Barrick Gold (which is also rated BBB-/stable) is currently trading at a credit spread of around 130bps which is 80bps tighter than the Newcrest 2021 line.

The Newcrest bonds offer investors an income generating exposure to gold in a well performing producer. This may be preferable to some investors versus holding a physical gold exposure (either directly or through an exchange traded fund) which does not generate an income return.

Please contact your FIIG representative for further information on the Newcrest US dollar bonds. Available to wholesale investors at a minimum face value of USD10,000.

*The yield to worst represents the yield to maturity for each bond.