Newcrest undermines estimates

Within two weeks of being told to expect further delays in project funding, investors in Newcrest Mining Limited (ASX: NCM) were dealt another blow late last week. Due to mining challenges, the company slashed its annual production guidance output by 10%.

Investors in Australia’s largest gold miner are quickly losing faith in the company, which has announced four production downgrades in less than two years.

On Thursday, the company’s share price plummeted to a four-and-a-half year low, despite the price of gold having doubled in that time. Investors traded 15.41 million shares – almost 12 million above average – resulting in more than $1.4 billion being wiped from the value of the company.

Since taking over as chief executive in July 2011, Greg Robinson has seen the share price of his company almost halve, with the news causing shares to fall 8.32% to finish trading on Thursday at $20.05.

For years now, whilst gold mining has been viewed as a growth industry, investors are now starting to realise it is more of an unsustainable value industry. With this latest let-down, analyst Evan Lucas has stated that “if you like gold, buy the metal, not Newcrest”.

Whilst Newcrest shareholders licked their wounds on Thursday however, holders of Azimuth Resources Limited (ASX: AZH) were rejoicing. Following a takeover bid by Troy Resources Limited (ASX: TRY), Azimuth shares skyrocketed over 40% to trade at $0.345 each. Troy shareholders were not so pleased with the deal, trading over 1.2 million stocks to finish 12.85% lower.

Foolish takeaway

Expecting to be producing 3.5 million ounces annually by 2017, Newcrest has huge growth potential. With that in mind, Newcrest currently poses as a cheap purchase with a P/E ratio of 16.6. With the mining industry facing a downturn and Newcrest continuously disappointing with production estimates however, investors would be wise to watch from the sidelines until positive signs of deliverance.

In other mining news, oil prices are set to rise dramatically over time. With limited supply — recent estimates suggest we only have enough oil to last 40 years — and growing demand from quickly expanding economies like India and China, oil prices can’t help but go up. Position yourself to profit from this trend now, with The Motley Fool’s brand-new FREE research report, 3 Oil Stocks to Send Your Portfolio Gushing Higher. Click here now, it’s FREE!

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The Motley Fool’s purpose is to help the world invest, better.  Click here now  for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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