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Why Deutsche Bank just upgraded Newcrest Mining Limited (ASX:NCM) shares

The share price of Newcrest Mining Limited (ASX: NCM) continues to power ahead as Deutsche Bank upgraded the stock following the miner’s quarterly production report yesterday.

Shares in our ASX-listed largest gold producer jumped another 2.7% to $21.49 in afternoon trade compared with the 0.7% gain on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index.

Today’s gain follows the 5% surge in Newcrest’s share price yesterday when the miner unveiled a 10% increase in gold production to 635,000 ounces (635koz) in the June quarter over the previous three months as its all-in sustaining cost (ASIC) fell $31 per ounce to $795 an ounce.

Deutsche was only anticipating a flat production figure and believes there’s more room for the stock to climb on the back of the strong quarterly update.

“The result was driven by a strong performance at its core assets; Lihir lifted mill throughput to a record 4Mt and production rose 52koz/21% QoQ [quarter-on-quarter] to 307koz; Cadia (156koz) and Telfer (120koz) lifted production 6% QoQ, driven by higher throughput,” said the broker.

“AISC fell 14% QoQ to US$795/oz (-4% vs. DBe) on the back of the strong result.”

There’s further upside for Newcrest in FY19 as well. Deutsche believes the miner can lift production by a further 4% in the current financial year to over 2.4 million ounces of gold while reducing ASIC by 22%.

The broker upgraded the stock to “buy” from “hold” with a price target of $23.50 a share.

But Deutsche wasn’t the only one impressed with the quarterly report. JP Morgan noted that Newcrest had produced 16% more gold in the latest quarter than what it was expecting, and the amount of copper produced for FY18 was ahead of management’s guidance.

“Cadia exceeded 32Mtpa in the month of June while Lihir reached 16Mtpa for the quarter, which gives us comfort that both assets can increase gold output in FY19,” said JP Morgan, which reiterated its “overweight” call on the stock with a $24.50 price target.

However, not everyone is taken with the result. Macquarie Group Ltd (ASX: MQG) still believes the stock’s a sell as it had already factored much of the good production news into its $20 a share price target and thinks investors should wait for management to provide its FY19 production and cost guidance on August 22 (when Newcrest reports its full year profit results) before getting excited.

Nonetheless, it’s hard not to be impressed with Newcrest’s performance. The stock’s rally today stands in sharp contrast to other gold stocks with Evolution Mining Ltd (ASX: EVN) tanking 4% to $2.92, St Barbara Ltd (ASX: SBM) tumbling 9.8% to $4.49 and Northern Star Resources Ltd (ASX: NST) sinking 0.5% to $7.32.

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Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited. 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.

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