Is Newcrest Mining Limited the best gold miner for new money?

Eighteen months on from the first round of collapsing gold prices, Australia’s gold miners are on a new low-cost war path to preserve investor returns.

For the most recent September quarter Newcrest Mining Limited (ASX: NCM), Northern Star Resources Limited (ASX: NST) and Evolution Mining (EVOLUTION FPO) (ASX: EVN) were the top three low cost gold producers. But does that make Newcrest Mining the best gold investment for new money? Perhaps.

The table below gives us an extremely clear picture of just why Newcrest Mining is the lowest cost miner with the correlation between production volume and cost. This is classic economies of scale where the miners with higher production volumes also come up trumps with lower costs.

Company Rank Production Sep Qtr 2014 (oz) AISC Sep Qtr 2014
Newcrest Mining Limited (ASX: NCM) 1 561,731 $864
Northern Star Resources Limited (ASX: NST) 2 147,884 $1,043
Evolution Mining Limited (ASX: EVN) 3 107,165 $1,083
Kingsgate Consolidated Limited (ASX: KCN) 4 53,557 $1,252¹
Beadell Resources Limited (ASX: BDR) 5 33,793 $1,307¹
Silver Lake Resources Limited (ASX: SLR)


29,531 $1,383²

Source: Company quarterly updates.

Notes: ¹reported in USD, converted to AUD; ²SLR Mount Monger Operations AISC only – accounts for 94.1% of production

On this basis Newcrest Mining, which earns around 85% of revenues from gold production, is the clear standout for investors. In addition to having an All-In Sustaining Cost (AISC) of just $864 for the September quarter, the company received an average gold price of $1,393 per ounce – a margin of 61% and well ahead of runner up Northern Star Resources at 34%.

It is also likely that Newcrest’s cost advantage is sustainable. Newcrest has the largest pool of gold reserves of all the listed miners which should allow the company to continue its high production over the medium term.

However, one of Newcrest’s biggest risks, especially compared to other listed gold miners, is its significant debt burden.

The large pile of debt and sizeable asset write-downs have pushed Newcrest’s gearing levels up from just 4% in 2011 to 33.8% as at 30 June 2014. More debt increases the costs of financing, which is excluded from the World Gold Council’s calculation of AISC.

Compared to Newcrest, runner up gold miner Northern Star Resources has very limited debt and has the next lowest AISC. Though, as the price of gold keeps falling that margin is slowly eroding.

Despite the tight cost focus and potential margins of Newcrest Mining and Northern Star, I am still steering clear of gold miners while the price of gold continues to deteriorate. One company I am buying instead is The Motley Fool's top stock for 2015.

This under-the-radar ASX company has a stunning track record and plenty of room to run. Discover our analysts' hands-down favourite bet for 2015 in this brand-new FREE report. Simply click here to grab your FREE copy

Motley Fool contributor Regan Pearson does not own shares in any company mentioned.

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