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Newcrest Mining Limited reveals not-so-golden result: Underlying profit down 58%

Newcrest Mining Limited (ASX: NCM) has revealed its result for the half-year ending 31 December 2017.

Newcrest is one of Australia’s largest gold miners and also produces copper.

Here are some of the highlights, compared to the prior corresponding period, all figures in this article are in US dollars:

  • Revenue down 5% to $1.7 billion
  • Earnings before interest, tax, depreciation and amortisation (EBITDA) down 20% to $624 million
  • Earnings before interest and tax (EBIT) down 50% to $230 million
  • Statutory profit down 48% to $98 million
  • Underlying profit down 58% to $116 million
  • Free cash flow down 48% to $134 million

This is a pretty disappointing set of numbers from Newcrest. The company said that it realised a gold price 1% higher than last year and a copper price 31% higher than last year.

However, gold production was down 8% and copper production was down 20%.

The balance sheet did improve compared to June 2017 with cash and cash equivalents increasing to $556 million from $492 million. Net debt improved to $1.436 billion from $1.499 billion. The gearing reduced from 16.6% to 15.9%.

A dividend of US 7.5 cents per share was declared with the report, which will be paid on 2 May 2018.

Management said that the financial performance of Cadia was affected by the seismic event on 14 April 2017, which resulted in a temporary suspension of mining operations at Cadia East. This was the primary reason of the lower gold production in the period.

Newcrest CEO, Sandeep Biswas, said “Our near, medium and longer term growth options remain on track. We expect the Golpu Feasibility Study update to be completed by the end of March 2018. We are targeting the Cadia Mining and Cadia Plant Expansion Prefeasibility Studies by the end of this financial year with results released in August.”

Outlook

Management said that guidance for FY18 remains unchanged. The expectation remains that gold production in the second half of FY18 will be higher than the first as Cadia East ramps up production and there are fewer planned shutdown events at Lihir. Guidance will be updated to reflect the divestment of Bonikro once completed.

Foolish takeaway

The huge drop in profit was clearly a disappointment. It’s very hard to say when it’s a good time to invest in a commodity company because gold prices could go a lot higher or lower any day and stay there.

Therefore, I think there are better shares out there to build your wealth with over Newcrest.

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Motley Fool contributor Tristan Harrison has no position in any of the 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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