Newcrest Mining Limited, Australia’s number one gold stock

Newcrest Mining has positioned itself remarkable well in a volatile gold environment

Newcrest Mining (ASX: NCM) is a pure gold play. Its focus is on gold exploration, gold mine development and gold production. It has long life mines with relatively low production costs. The all in cost this financial year is a remarkably low A$988 per ounce, compared with A$1,283 last financial year. This year’s figure is lower than that of many large global producers, including Gold Fields, Anglo Gold, Newmont and Kinross.

An essential part of the company’s strategy for survival has been the use of several geographically diverse operations. There are six large mines in operation, Telfer, Western Australia; Cadia Valley, New South Wales; Lihir, Papua Nui Guinea; Hidden Valley, Papua Nui Guinea; Gosowong, Indonesia; and Boniko, Cote D’Ivoire, Africa. Also there are three projects in advanced stages of development, being O’Callaghans, Western Australia; Wofi-Golpu, Papua Nui Guinea; and Namosi, Fiji.

Improved cost of production is the result of a concerted drive to ensure operations remain profitable during the current extended period of relatively low gold prices. Examples where costs have been curtailed are reduced open pit mining activity at Telfer, cessation of processing low-grade stockpiles at Cadia Valley, and reduced mining activity coupled with increased stockpile processing at Lihir.

In its presentation this week, Newcrest told Bank of America Merrill Lynch that it is making sound progress in controlling costs. Also, guidance for gold production in the 2014 financial year was given as 2.3M ounces, subject to market and operating conditions. Therefore, Newcrest has more than fourfold the production of its nearest Australian rival Northern Star (ASX: NST), which, with recent acquisitions, has just been boosted to an estimated 0.55M ounces annually. Newcrest has gold reserves of 78M ounces, which is way out in front of any Australian company and even ahead of overseas gold majors such as Anglo Gold, Goldcorp, Gold Fields and Kinross.

When one considers total reserves and their geographical spread, combined with a relatively low all in cost, Newcrest remains my preferred long term gold investment.

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Motley Fool contributor Chris Koenig does not have shares in the companies mentioned.

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