What: The largest ASX-listed gold mining company, Newcrest Mining Limited (ASX: NCM), has been on a downward trend since August 2011, when gold prices hit an all-time high of about US$1,900/ ounce. Only in December 2013 did the fall stop as gold prices rebounded off lows around US$1,200/ ounce.
Since December, its stock is up almost 48 per cent versus the 6.3 per cent rise in the S&P ASX All Ordinaries Index (ASX: ^XAO) during the same period.
So what: At $10.29 a share currently, it has traded between $10 and $11 since early April. Investors may want to start following the stock as gold prices are firming up. There are three reasons why we may see the mining company begin turning up from here.
1) Gold price stabilising
Earlier gold price lows have made speculators move out of their positions. After a short run up to US$1,390/ ounce, prices sank to about US$1,280/ ounce, but have gained a footing near US$1,290/ ounce.
2) Indian gold import ban may be relaxed or removed
Up until last year India was the number one largest consumer of gold, importing close to 1,000 tonnes in 2013. In August 2013 the Indian government imposed a gold import ban to control its capital out flows.
This affected gold prices, helping the downward trend leading to December’s low. This month a new Indian prime minister was elected and the new administration may either relax or remove the import ban. This should increase gold consumption and possibly lift gold spot prices.
3) Newcrest opens new mine
Newcrest Mining has opened its Cadia East mine, which is part of its Cadia Valley operations in NSW. It is one of the largest gold and copper deposits in the world. Its current Cadia mine all-in sustaining cost for production was only $381/ ounce in the March quarter.
With the new mine, the company projects the Cadia Valley operations will increase production to 700,000 ounces in 2016 and even more in 2017.
Now what: Gold mining stocks will follow gold’s price up and down. Stable or rising gold prices will help Newcrest’s stock rise on potentially higher earnings from increased production. It is one of the lowest cost gold producers in Australia, giving it better operating margins.
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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.