Newcrest Mining

Australian Resources Weekly provided by Australian market analyst UBS.

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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 has a Hold recommendation (2H) and a retained share price target of $25.20. The first of Newcrest's large future developments, Ridgeway Deeps, has officially been approved. The A$545m project will extend the current Ridgeway mine life by ~12 years and continue to make a valuable group contribution due to cash costs of A$111/oz. The $545m was higher than expected but this was offset by a 3 year better mine life than expected and with substantially lower cash costs. Over the 12 years the mine should produce 1.6moz of gold and 210,000t of copper by-product.The current sub level cave method will be replaced by block caving that should result in lower unit mining costs. The other component of the forecast for Newcrest Mining is $111/oz cash costs is a weighted average copper price of US$1.43/lb. The analysts forecast cash costs remain well above the company’s target due to a lower copper price forecast. A weakening US$ gold price and a record A$/US$ exchange rate are presenting Aussie gold stocks with a strong headwind. In addition Newcrest's fortunes are being negatively affected by uncertainty over Telfer's final reserve base.

Newcrest Mining (NCM) have a Neutral 2 broker call and a share price target of $26 from market analyst UBS. Telfer in flood, Cadia in drought: March quarter report. Q3 gold production was 390 koz vs UBSe 381koz. Telfer production was as expected but Cadia, Cracow and Ridgeway all exceeded expectations. Gold production guidance has changed for FY07, decreased to 620koz from 675-700koz previously for Telfer due to the onging impact of the March rains, and +10koz at Kencana and +10koz at Ridgeway. Copper production guidance +2kt at Ridgeway and -4kt at Telfer. Higher copper prices offset production decreases: Overall they have reduced our production estimates for FY07 in line with todays' guidance, however this was more than offset by the positive impact of the rising copper price and the resulting positive quotational period pricing adjustments. The analyst's FY07 estimate has risen 24% to $75m post the hedge restructure adjustment. Watch water situation at CVO: Water supplies at Cadia are at critically low levels and if there is no rain in May, Cadia production may be impacted. They have assumed production continues as previously anticipated, but note that Cadia is expected to contribute ~18% of production in 2008. The sharemarket analyst's valuation for Newcrest is $9.87. Their longer term view remains to look to 2008 and beyond where higher production and lower hedging should lead to greater cashflow, and CVO and Kencana offer further growth potential. Our $26 price target is set at a global average p/npv.

Newcrest Mining (NCM) have a maintained Neutral stock recommendation and a $23 share price target following an update by market analyst Macquarie Research Equities. NCM has once again been unfortunate, this time with seasonally heavy rainfall at its Telfar operations in the Pilbara region, Western Australia. NCM has announced Telfer's mining and concentrate transportation has now been suspended for at least 1 week. On Wednesday the 28th March, Newcrest (NCM) announced that the open pit and underground operations at Telfer has been temporarily suspended, and the road to Port Hedland has been closed, all due to heavy rain. The Mill is still continuing, however it is processing relatively low grade stock piles. The analyst understands as of Tuesday evening the 3rd April the road still remains closed, underground operations remain suspended and that only waste stripping has recommenced in the pit. They highlight the 3 negatives due to the heavy rain: (1) A halt to mining; (2) Lower grade material being processed; (3) NCM is unable to send concentrate to Port Hedland, with likely congestion when it does reach the port. They analyst have quantified these events and have made these adjustments. Production for 2007, will be lower by 40koz to 630koz (NCM guidance: 675 – 700koz). They have also lowered 2007 copper production by 2.7kt to 29kt (NCM guidance: 32kt). The seasonal heavy rain is a fact of life at Telfer and will continue to be going forward. Nonetheless the analyst senses that the market remains somewhat sensitive to Telfer production downgrades. Telfer has always been a problematic operation and in the analyst's view, the market should not be overly focused on Telfer's operating issues simply because it is in profitable production at a time of strong copper and gold prices. Investors are also increasingly having regard for the excellent story unfolding at Cadia East and Kencana in terms of potential reserve and production growth in the medium term. The key catalyst for this stock is still consistent production performance at Telfer and the heightened global M&A activity in the gold sector.

Shares analyst UBS have a look at which shares Outperform when the Australian dollar rises. The analyst: The obvious way to measure a share's currency sensitivity is to look at its EPS sensitivity. However, the shares analyst note that this ignores what else is going on when the Australian dollar (A$) is rising.

Newcrest Mining (NCM) have a Neutral 2 share trading recommendation and a price target of $26 per share (from $24) from analyst UBS. Newcrest reported NPAT of $37m vs UBS estimates $30m vs Consensus $35m and $74.2m in H106. No dividend was declared as expected. Gearing has fallen to 49% from 50% at June 30. The analyst has been aware of flat margins following the production results, and hence the result was inline with our expectations. They did not see any significant new information in the financial accounts. The presentation the analyst's attended however provided a positive picture for the future highlighting that: 1) cashlfow should increase as hedging rolls off, 2) downside risk to the Telfer "worst case" reserve downgrade scenario ruled out, 3) there are substantial growth opportunities aside from Telfer at Kencana and CVO. These points were not new to us, but the focus of the presentation was positive. The analyst believe today's presentation may have alleviated some of the market's concerns regarding further downgrade potential at Telfer. This should be a catalyst to reverse Newcrest's recent underperformance compared to the sector. Their share price target is now $26.00, set at the global average P/NPV of 2.4x to our valuation of $10.86 based on the likely case reserve scenario for Telfer. (Previously $24 set at the average P/NPV of 2.3x and worst case valuation scenario)

Newcrest Mining (NCM) have a Neutral 2 Stock Recommendation with a share price target of $23 from stock analyst UBS. Their price target for the miner comes from the global average P/NPV of 2.3x to their valuation of the company which is $9.91 – based on the worst case scenario for Telfer. NCM have reported a soft Q2 production result, gold production was 6% below UBSe as a result of power outages at Telfer and lower grades. The supergene ore reserve has been downgraded by 12% for Au, 11% for Cu following detailed re-estimation of the model, this results in a downgrade to production guidance, while further reserve downgrades have been flagged for Telfer underground and open pit. The analyst have downgraded our earnings forecasts reflecting the lowered production guidance. NCM now expect 675-700koz from Telfer in FY07 vs prior stretch target of 770koz. NCM provided guidance for FY08E of 800koz vs UBSe of 982koz. The analyst continue to look for near term improvements at Telfer as the underground ramps up and gravity recoveries lift, however, with further reserve downgrades ahead for Telfer we believe outperformance in the near term is unlikely.