Newcrest Mining Limited shares drop lower on Cadia update

In morning trade the Newcrest Mining Limited (ASX: NCM) share price has dropped lower after the gold mining company provided an update on its Cadia operation.

At the time of writing the gold miner’s shares are down almost 1% to $20.02.

What was in the update?

According to the update, Newcrest will recommence production at its key Cadia operation today after suspending all mining and processing operations on March 10 following a breakthrough of tailings material at the northern tailings facility embankment.

However, all mined ore will be stockpiled at the surface until processing recommences.

Processing remains suspended for the time being and management is working on multiple recovery scenarios. These include using alternative tailings locations such as the old Cadia Hill open pit.

Because of this, management has advised that it still remains too early for its guidance to be updated.

What will the damage be?

One broker that appears to believe the damage could be significant is Credit Suisse. As I explained a couple of weeks ago, its analysts have retained their underperform rating and $18.50 price target on the gold miner’s shares following the incident.

The broker believes Newcrest will deliver earnings per share of just 19.9 cents in FY 2018 now, compared to the consensus estimate of around 66 cents per share.

Should you invest?

I would follow the advice of Credit Suisse and avoid Newcrest Mining regardless of whether you are bullish or bearish on the gold price.

Cadia is an incredibly lucrative asset for Newcrest and a big contributor to its overall earnings. While management hasn’t blamed this recent issue on seismic events, it certainly has the hallmarks of one in my opinion.

This would make it one of a number of seismic events that have occurred at the site in recent times. This could potentially be a sign that the operation is causing the events, which could ultimately call into question the viability of the operation.

Investors looking to gain exposure to gold might want to consider rivals Northern Star Resources Ltd (ASX: NST) and Resolute Mining Limited (ASX: RSG) instead.

Alternatively, with U.S. rates rising fast investors might want to skip gold miners and look at these top stocks instead.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor James Mickleboro 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 Scott Phillips.

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.