January 11, 2020 - 7:29pm EST by
2020 2021
Price: 21.43 EPS 0 0
Shares Out. (in M): 768 P/E 0 0
Market Cap (in $M): 16,382 P/FCF 0 0
Net Debt (in $M): 395 EBIT 0 0
TEV (in $M): 16,777 TEV/EBIT 0 0

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Newcrest Gold
The gold mining industry has seen a wave of corporate activity since 2018. Newcrest is
arguably one of the most desirable take-over targets in the industry for several reasons
that we discuss below. We therefore expect one of the majors to bid for Newcrest as a
key step to attaining definitive market leadership or one of the Asian players to bid for
the group as a means to join the major league.
Newcrest’s CEO, Sandeep Biswas, has led the group since mid-2014. During this time he
has consistently invested in metallurgical research and mining engineering, to the point
where we believe that Newcrest is the undisputed leader in high draw/deep block caving,
selective oxidation and coarse grind flotation. Without these breakthroughs, the group’s
mines wouldn’t have been nearly as profitable as they are.
While the industry was reining in capex and throttling exploration budgets post the GFC,
Newcrest invested heavily in exploration projects with billions of pounds of copper and
large gold endowments, suited to its industry leading skills (porphyries & epithermal gold
projects). This has positioned Newcrest as a valuable JV partner for exploration
companies, with its combined offering of patient capital and value-adding technologies.
At a time when the rest of the gold miners are rapidly running out of Ore Reserves,
Newcrest’s growth portfolio is just beginning to bear fruit and will catapult it to a new
relative position in the gold and copper mine rankings.
Thanks to the group’s strong balance sheet and first quartile costs, these growth
opportunities can be fully funded in-house, should the need arise. The investment case for
Newcrest therefore doesn’t rest on the need for a white knight bidder. In our experience
the group resembles some of the finest examples of excellence that the mining industry
has seen, and Newcrest will continue to thrive until the inevitable premium bid arrives.
What makes Newcrest such a compelling target?
1. Individual Mines with Significant Annual Production
Few gold mines produce more than 0.5m ozs on an annual basis and of those few
are wholly owned. This makes it hard to achieve economies of scale.
Cadia produced 913,000 ozs Au and 202m lb Cu last year (100% owned)
Lihir produced 933,000 ozs Au last year (100% owned)
2. Individual Mines with Large Ore Reserves and long lives
There are few individual mines holding more than 20 million ounces of
economically extractable Ore Reserves. So while a fair number of mining companies
have portfolios of smaller deposits that collectively tot up to 20m ozs of theoretically
mineable Resources, these hold little attraction for large corporates, as they lack scale
and seldom generate sound risk-adjusted returns.

Cadia has an Ore Reserve of 22m ozs Au and 9.4bn lbs Cu (Life : 20+ years)
Lihir has an Ore Reserve of 24m ozs Au (Life : 20+ years)
3. Low Production Costs per ounce
There are few substantial gold mines left that produce at an All-in Sustainable
Cost of less than $1000/oz. (Non-IFRIS World Gold Council cost metric)
Cadia’s AISC per oz in 2019 was $132/oz
Lihir’s AISC per oz in 2019 was $887/oz
4. Desirable Jurisdictions
Resource nationalism is becoming increasingly problematic for mining
companies, with sharp increases in royalties and other taxes and ownership
requirements being the order of the day.
Cadia is situated in Australia (Tier One jurisdiction)
Lihir is situated in PNG (Tier Two jurisdiction)
5. A strong pipeline of new projects
New gold discoveries of more than 10m ozs have become surprisingly rare in the
past 20 years.
Wafi Golpu (PNG) : Ore Reserve : 11m ozs Au & 11bn lbs Cu (50% Owned)
Red Chris (Canada) : M&I Resource : 12m ozs Au & 8bn lbs Cu (70% Owned)
Fruta del Norte (Ecuador) : Ore Reserve : 4.8m ozs Au (32% Owned via FTMNF)
Red Chris & Fruta entering production this year
19 Other projects on 5 continents : Wholly-owned to JV’s, Farm-ins and Options
In summary Newcrest offers investors significant upside based on its growth projects in a
rising gold market, while the group’s low cost structure offers significant downside
protection. This is a rare combination in the sector.


I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


Take-over offer from Newmont or Barrick


Significant exploration success


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