Why I’m bullish on Newcrest Mining Limited shares

Credit: Szaaman

The price of gold has gained 24% during 2016 in what has undoubtedly been a volatile year for equities and for the global economy.

That’s a key reason why I’m bullish on gold and on the prospects for Australia’s largest gold miner, Newcrest Mining Limited (ASX: NCM). Volatility looks likely to remain a feature of global stock markets for the foreseeable future and the gold price could keep on rising as investors seek out a perceived store of wealth during uncertain times.

I think that volatility will remain high during the remainder of 2016 due to a ‘perfect storm’. There is the uncertainty of Brexit as well as the potential for further unrest in the EU, while the US will soon elect a new President and this is likely to cause more investors to switch from a ‘risk-on’ to ‘risk-off’ attitude over the coming months.

As ever during such a period, gold is likely to benefit and this means potentially higher profits for Newcrest Mining.

In my view, a higher gold price is also on the cards because of a dovish and some may say fearful, US Federal Reserve. It has backtracked on its plan to raise rates multiple times in 2016 and this is great news for Newcrest and its gold-mining peers since it means less competition from interest-producing assets.

However, external factors are not the only reason why Newcrest Mining is a ‘buy’ in my opinion. I’m also optimistic about its current strategy. For example, in its most recent quarter, Newcrest was able to reduce its all-in sustaining cost per ounce by 4.5%, while at the same time increase its gold production by 2.6%.

This will have a positive impact on the company’s profitability and I’m also upbeat about Newcrest’s prudence when it comes to investing for the future. For example, it has reduced capex guidance for the full-year to USD$440 million – US$540 million from USD$480 million to US$575 million. While a rising gold price may indicate that greater investment is warranted, the gold mining industry only recently experienced a difficult period, so it seems sensible for Newcrest to cut costs, raise production and then once profitability is moving higher, invest more heavily for long term growth.

So, while Newcrest has already risen by 81% year-to-date and is up by 9% since last Thursday, I still feel there are more capital gains to come over the medium term.

3 Rotten Shares to Sell, and 1 to Buy Today

After a double-digit rally for the ASX since 2016 lows, investors should be on high alert. You'll find a full rundown below of 3 shares we think you should avoid today plus one top pick worth buying, even if the market turns south and the RBA keeps rates at an "emergency low." Simply click here to uncover these stocks.

Motley Fool contributor Robert Stephens has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.