Newcrest Mining Limited announces 88% fall in profit

What investors need to know about Newcrest Mining Limited’s half-year result.

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Newcrest Mining Limited (ASX: NCM) today announced its first-half-year result since the price of gold plummeted mid-2013. Here are some of the key facts investors should be aware of:

Production

Group gold production was up a massive 27% in the six months to 31 December 2013, from 953,000 ounces to 1.208 million. This was driven by completed projects at Cadia Valley and Lihir starting up.

An important note for investors is the reduction in the company’s gold reserves. Lower gold prices saw Newcrest reduce its current estimated gold reserves by 11% (around 9 million ounces). The company removed marginal ore deposits from its estimates which would be uneconomic to extract at current prices. Gold reserves are now estimated to be 78 million ounces.

Costs

All-in sustaining costs for the half were $1,003 per ounce, a commendable 18% reduction on the first half of 2012. This compares to the average realised gold price of $1,405 per ounce which was down by just 13%.

Profit

Despite a hairy few months in 2013 after the rapid fall in gold price, Newcrest produced an EBIT result of $404 million, down 14% over the same period in 2012. However the company will report a statutory profit of just $40 million for the half year, down 87.6% from $323 million in the prior period. Profit was dragged down by a significant $120 million income tax expense relating to Australian research and development claims between 2009 to 2011 financial years.

Outlook

Newcrest’s outlook for the coming six months looks positive. The company expects free cash flow to be higher in the second half of the year and has maintained full-year production guidance of around 2.3 million ounces, subject to market and operating conditions.

Similarly, all-in sustaining costs are expected to be kept low for the second half of the financial year.

Foolish takeaway

Before today’s announcement the recovering gold price and lower operating costs had helped to drive Newcrest shares up 29% so far this year, compared to the 1% decrease in the S&P / ASX 200 Index (Index: ^AXJO) (ASX: XJO).

The results were certainly anything but glowing, but the outlook for the second half of the financial year feels positive for investors and could see the share price rising higher as a result.

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Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned in this article.

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