The Newcrest Mining Limited (ASX: NCM) share price has fallen 5% this week to $22.20. This comes after fears of another North Korean intercontinental ballistic missile launch were eased over the weekend. Instead of launching missiles to commemorate the anniversary of North Korea's September 9 founding, Kim Jong-un chose to throw a banquet for his nuclear scientists.
Newcrest also publicly released a presentation given on Monday by CEO Sandeep Biswas to the CLSA investor's forum in Hong Kong. This presentation detailed their objectives for growth in the near, medium and longer term and gave key updates about their mining explorations and reserves. NCM is Australia's largest Gold mining company with a market capitalisation of over AU$15 billion and a portfolio of mines located in Australia, Africa, the Pacific region and Asia. Newcrest grew their revenue to AU$3.48 billion in FY17 from AU$3.3 billion in FY16 and reduced their debt by AU$608 million in FY17. They also increased their operating cash flow by 18% to AU$1.47 billion in FY17.
Competitors of Newcrest similarly realised falling share prices this week, with Regis Resources Limited (ASX: RRL) losing 9% of its share price while Northern Star Resources Ltd (ASX: NST) has taken a 6% hit. These falls are unsurprising given that the share prices of gold mining companies tend to rise with political instability and fall as it subsides. Furthermore, the WA state government last week announced a 50% hike in gold royalties, which adversely affects Australian gold companies and may have contributed towards falling share prices.
Outlook:
There could be more upside in the gold price as North Korea continue to prove an obstacle to political stability. The US reserve has also taken a more dovish tone recently and appear less inclined to raise interest rates than analysts initially anticipated. This benefits the gold price as rises in interest rates often push money out of gold and into assets paying yields.
This week aside, the Newcrest share price has been rising significantly over the past 3 months and has recovered by more than 35% from its one year low of $16.35. Newcrest has consolidated their financial position by reducing gearing from 23% in FY16 to 16.6% in FY17 and they also have a strong interest coverage ratio of 13.6. This week's dip could be a good buying opportunity, as NCM shares still sit well below their one year high of $25.57 despite Newcrest's strengthened financial position.
However, Newcrest are trading on a Price to Earnings ratio significantly above the average of their peers. Peers like Northern Star Resources have also experienced faster growing net income compared to Newcrest's, which actually fell 7% in FY17 due to an increase in selling, general and administrative costs.
Newcrest may be suited for investors looking for a safe haven while those searching for value may be better poised looking elsewhere. I would place a hold recommendation on Newcrest at today's price.
