A rallying gold price and a weak Australian dollar could be playing in Newcrest Mining Limited’s (ASX: NCM) favour so far in 2016, but they certainly didn’t help the gold producer in the six-months ended 31 December, 2015.
Australia’s biggest gold producer released its first-half earnings results to the market this morning, revealing a steep fall in revenue and statutory profit compared to the year-ago period. Revenue was US$1.55 billion, down 13% from last year’s US$1.78 billion, while its statutory net profit declined to US$81 million, down 55% from last year’s US$180 million result.
Newcrest also improved its financial position during the period, reducing its gearing and net debt levels. Net debt was reduced to US$2.65 billion, down 8% from 30 June 2015, while its gearing level fell to 28.1% from 29.3%. There’s still a way to go however before it can reach its gearing level target of “below 25%”.
The miner also reaffirmed its previous production guidance, forecasting production of between 2.4 million and 2.6 million ounces of gold, 2 million and 2.4 million ounces of silver, and between 80,000 to 90,000 tonnes of copper.
Here are some of the other highlights from the report:
- Gold production of 1.204 million ounces, up 6%
- Copper production of 38,918 tonnes, down 23%
- Group all-in sustaining cost (AISC) down 5% to US$770 per ounce
- Free cash flow up 19% to US$254 million
- Average realised gold price: US$1,113 an ounce, down 10%
- Average realised copper price: US$2.29 a pound, down 26%
What happens now?
Indeed, 2015 was a tough period for the gold miners. The gold price was languishing around its lowest price levels since the Global Financial Crisis in 2009, although those difficulties were partially offset by the weaker Australian dollar.
In the time since however, the gold price has rebounded strongly. It’s fetching US$1,237 an ounce at the time of writing – up nearly 17% since the beginning of the year – as a result of investor uncertainty regarding the strength of the global economy, together with renewed expectations that US interest rates will increase at a slower pace than had been previously anticipated.
This could certainly provide a boost for Newcrest’s upcoming earnings results, especially if the gold price can continue to rise and if the Australian dollar can continue to fall.
For now, however, investors have been told once again that they won’t receive a dividend for the period just ended, while there is doubt over whether it can pay a dividend when it announces its full-year results in August.
Newcrest Mining shares have enjoyed a strong start to 2016, as have a number of its rivals such as Northern Star Resources Ltd (ASX: NST) and EVOLUTION FPO (ASX: EVN). Indeed, that trend could continue if investor uncertainty regarding the global economy continues to increase, potentially boosting gold prices as a result.
In saying that however, many analysts have expressed their belief that these fears of a global recession have become overblown, and that a recovery could be near (which could, theoretically, take some of the heat out of gold prices). Indeed, gold prices could go either way from here, generating more gains for investors or else hurting their returns. That’s something that investors should keep in mind before making a move into the sector.
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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.
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