Newcrest Mining Limited (ASX: NCM) started its life in 1966, when American parent, Newmont Mining established an Australian subsidiary, Newmont Holdings Limited. The company listed on the ASX in 1987. In 1990, it acquired Australmin Holdings, merged with BHP Gold and changed its name to Newcrest Mining. Today, Newcrest’s shares are listed on the Australian Stock Exchange (ASX), the Port Moresby Stock Exchange (POMSoX) and the Toronto Stock Exchange (TSX).
Newcrest is one of the world’s largest gold companies. It has a portfolio of first class operating mines with considerable gold reserves and a strong pipeline of growth options, located primarily in the Asia Pacific region. The company’s assets comprise low cost, long life mines and brownfield and greenfield exploration projects. In recent years, Newcrest has placed significant focus on investing in strategic research and development of underground bulk-mining technologies. It has applied its underground mining methods at Telfer, and plans to do likewise at Cadia East and Wafi-Golpu.
Successful companies such as BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) have new mines in the pipeline to replace old ones. Similarly Newcrest has lasted the test of time by developing new mines and not just relying on one massive mine such as Telfer, once the largest gold mine in Australia.
Miners by their very nature are price takers. Future commodity prices can be volatile and just about impossible to predict with any degree of accuracy. At times, when the gold price is depressed, it’s the low cost producers that can continue to mine and meet their commitments. High cost producers may run out of working capital. Unless they can raise capital they become vulnerable to being taken over. Raising funds from shareholders or financial institutions becomes increasingly difficult when times are tough. Therefore, to weather contracted periods of low commodity prices, it is imperative to be a relatively low cost producer, which Newcrest has become.
Newcrest is well placed to deliver competitive returns over the long term. It is an unhedged gold producer with a relatively low cost of production, sound balance sheet and strong operating cash flow. It has extensive technical capability and a pipeline of organic growth opportunities. Shares in this company should be acquired for long-term benefit rather than short-term gain.
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Motley Fool contributor Chris Koenig does not have shares in the companies mentioned.