It should have been a dark day for gold miners with the precious metal suffering its longest slump in nearly 10 years, but Newcrest Mining Limited (ASX: NCM) has given supporters reason to keep the faith when it released its quarterly result this morning.
Shares in Australia's largest listed gold producer jumped 2.1% to $11.77 in early trade on news that it had produced more gold in the June quarter than originally anticipated and as annual all-in sustaining costs (AISC) fell 12% to $US789 an ounce when compared to 2013-14.
Newcrest's June quarter total gold output came in at 673,542 ounces, compared with the median analyst estimate on Bloomberg of 604,000 ounces thanks in part to better-than-expected output from its Cadia mine.
This puts its 2014-15 total gold production at 2,422,568 ounces, which is closer to the top end of management's guidance of 2.3 million to 2.5 million ounces.
But full year copper production was disappointing at 96,816 tonnes, compared with the miner's forecast of 95,000 to 105,000 tonnes.
Investors were not bothered by that though as they cheered the double tailwinds of higher production and fatter margins on Newcrest's bottom line.
Cost cutting and greater economies of scale at a number of its mine sites drove the improvement in AISC, which is a better measure of actual costs to sustain the business, and lifted profit margin to $US447 an ounce for 2014-15 compared with $US395 per ounce in the year before despite the lower gold price.
This puts Newcrest in a good position to weather the downturn in the gold price, which fell for the tenth consecutive session overnight to $US1,091.50 an ounce. This is the longest losing streak for the precious metal since 1996 and puts its one-year loss at 17%.
Newcrest is not the only one to produce a stellar quarterly result. You only have to look at Northern Star Resources Ltd (ASX: NST) and other smaller gold miners to see examples of this.
However, the good results aren't enough to entice me to buy into the sector because it would be like trying to catch a falling knife.
I suspect it is only a matter of time before the gold price tests the psychologically important $US1,000 an ounce level due to a number of headwinds like the strengthening US dollar from an expected interest rate hike in that country in September and easing global economic tension.
Having said that, I don't think it's game over for gold. It will come back into fashion as it always has. But until I am more confident that the gold price can stabilise and I can see some near-term positive catalysts for the precious metal, I can take my time to plan my entry.
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