It certainly has been a turbulent ride for shareholders of Newcrest Mining Limited (ASX: NCM) in 2016.
Although the gold and copper miner’s share price is 38% lower than its 52-week high of $27.20, it has still provided shareholders with a year to date return of 29.3%.
This return is far greater than that of the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) which has managed to put on just over 5% so far in 2016.
But will Newcrest carry on this market-beating trend in 2017?
Unfortunately I don’t expect that to be the case. Not unless a geopolitical event triggers a flight to safety by investors. Tensions in the South China Sea are rising, but I don’t expect things will escalate to the point that we see gold retrace its declines.
With the spot gold price fetching US$1,137 an ounce, it now trades at its lowest level since the start of February.
And with the Federal Reserve likely to raise U.S. rates at least three times in 2017, I expect significant pressure on the gold price over the next 12 months will bring Newcrest, Regis Resources Limited (ASX: RRL), and Resolute Mining Limited (ASX: RSG) a further headache.
Despite the gold price drop, Newcrest is still likely to remain profitable next year thanks to its all-in sustaining costs reducing to US$762 an ounce in FY 2016 compared to US$1,300 an ounce in FY 2014. But the bumper profits which many expected the company to enjoy look to be long gone.
At 18x estimated FY 2017’s earnings I feel Newcrest is reasonable value if the gold price stays at the current level. But should the price drop significantly lower as I have predicted, then I feel it is likely that we will see Newcrest’s shares drop lower as well.
But if we’ve learnt anything this year, it is that commodity prices can be incredibly unpredictable. So gold and the gold miners could yet surprise in 2017, but don’t count on it.
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Returns as of 6th October 2020
Motley Fool contributor James Mickleboro 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.
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