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Newcrest Mining

By Dan Stratful

Monday 10th October 2011 2 Comments

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The recent pullback in the gold price from US$1,920oz to US$1,650oz provides gold bugs with a buying opportunity in the precious metal, which some investors believe will head towards US$2,500oz and beyond, as European sovereign debt issues and global uncertainty persist.

Gold mining shares are one way of accessing the gold sector and Newcrest Mining (NCM) is Investment Research Group’s (IRG) preferred exposure to gold. NCM is the world's fifth-largest gold miner by production, and has since completed the acquisition of Lihir Gold in August 2010. While the PNG gold assets of Lihir raise the operational risk, NCM is still the premier gold stock on the ASX.

Newcrest had a transformational financial year in the year to 30 June 2011 with the successful acquisition and integration of Lihir Gold, a good operational performance, strong reserve and resource growth and solid progress on development projects. These results culminated in record net profits, strong cash flows, a final dividend of 20 cents and low gearing.

Underlying Profit of $1.05 billion was an increase of 36% from the corresponding year. The Statutory Profit increased by 63% from $557 million to $908 million. Gold production of 2.52 million ounces was 43% higher than the corresponding year. Copper production decreased from 86,816 tonnes to 75,631 tonnes, with lower production from Cadia Valley and Telfer.

The average price for all metals increased sharply in US$ terms, with gold rising to US$1,360/oz (2010: US$1,106/oz) and copper to US$3.88/lb (2010: US$3.02/lb). The corresponding impact on A$ revenue was reduced somewhat due to the increasing strength of the A$ versus the US$.

NCM will benefit from a rising gold price and its balance sheet leaves it in good position to make further acquisitions and fund growth.

Investment Research Group (IRG) views Newcrest Mining shares as a GROWTH BUY and the shares can be used as a hedge in the portfolio, for when markets turn south. NCM generally tends to outperform the market when the frequent sell-offs occur as investors tend to rush to gold as a form of safety.

NCM shares today traded at $35.95.

For sharemarket and fixed income trading enquires contact:
Dan Stratful at Investment Research Group (IRG)
Authorised Financial Adviser (AFA)
0800 437 8489, 09 304 0232, dan.stratful@irg.co.nz
**A disclosure statement is available, on request and free of charge by calling 0800 437 8489, 09 304 0232 or dan.stratful@irg.co.nz




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Comments from our readers

On 10 October 2011 at 9:46 pm Jogo said:
NCM share price has not moved in line with the gold price over the past year. In fact, the price has declined in the face of a strong growth in the gold price. Even when the gold price is expressed in A$ (which shows less growth than the usual US$ price) we find a strong disassociation between NCM and gold. So what makes NCM such a good buy now in the face of a falling gold price? Can Dan Stratful give meaningful comment on this.
On 10 October 2011 at 10:01 pm colin said:
Yep, and it might also encourage others to quit while they are ahead!!!
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