Newcrest Mining (NCM) Rights Issue Scenario Analysis

Submitted by Craig Strzelecki on 13 September, 2007 - 10:53

Newcrest Mining (NCM) shares has been analysed by Australian stock analyst Citigroup Investment Research about the upcoming rights issue: Simply based on the 7 for 20 rights issue, the previous closing price would be reset to A$22.88 and the analysts' target price would be reset to A$28.50 per share. Adjusting the model for the rights issue and removing the hedge book would result in a slightly lower target price of $28.00/share; however the analysts' Buy recommendation would be retained with an ETR of 22%. ased on the company's assumptions, $1.5bn will be used to eradicate the hedgebook with the remainder used to pay down the debt. The pre-purchase of 2.3Moz has cost $602m and the gold loan $240m. NCM has assumed the remaining 1.7Moz will cost $658m (using a price of US$700/oz). Earnings on the up: Under the scenario analysis the analyst has reported Newcrest Mining earnings would increase by 50%, 31% and 13% in FY08e, FY09e and FY10e respectively. Risks to strategy: An upward move of US$50/oz in the gold price would increase the cost of closing out the remainder of the hedge book by A$100m. Given that Newcrest Mining (NCM) has flagged the re-purchase of 1.7Moz over the next year, the gold price could ultimately be supported above the assumed US$700/oz. Theoretical conflict: A surprising element of the deal was the purchase of put options at a cost of $80m. This was a board and management decision, not a requirement from the banks. It seems a strange decision to close out the hedge book and then re-hedge as it provides little or no protection for shareholders. Take up the rights issue : The analysts would recommend taking up the rights issue and believe that most of the eligible shareholders will. Subsequently, they anticipate the price of the book build to be in the range of $21.50 - $22.50 per share.

Newcrest Mining Limited is listed on the Australian Stock Exchange (ASX) under stock code NCM. You can view their investor website here. NCM was listed on the ASX on 4 June, 1987 as Newmont Mining. Newcrest Mining Limited was formed in 1990 from the merger of Newmont Australia Limited and BHP Gold Limited. Newcrest and its predecessors have a strong history of successfully exploring, developing and operating gold mines, predominately in Australia. Ian Smith is the CEO of Newcrest Mining and Don Mercer the Chairman. Current operations are: Ridgeway, Cadia Valley, Telfer, Toguraci and Cracow. They have current explorations in the Cadia District, Gosowong, Telfer District, Cracow and Ashburton, WA. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade NCM. Check your charts and good luck with your share trading!