The Newcrest Mining Limited (ASX: NCM) share price has been on an absolute tear so far in 2019, rocketing from just under $22 per share to almost $36 per share today, a gain of 65%.
But before you jump in and buy today, here are three things you must know:
1. How much gold does Newcrest Mining have?
At 31 December Newcrest Mining estimated that it had total reserves of 54 million ounces (oz) of gold. That’s a lot of gold!
To give it a sense of scale, fellow listed gold producer Northern Star Resources Ltd (ASX: NST) reported group reserves of one-tenth of that, 5.4 million ounces of gold, at 30 June 2019.
Even if we subtract the 1.3 million ounces of gold that Newcrest Mining hauled out of the ground between January and June this year, Newcrest would have enough gold for roughly the next 21 years, based on 2019 full year production.
2. How much debt does Newcrest Mining have?
Oh man, do we want to check this closely. Debt can amplify returns for shareholders when gold prices are climbing, but it also can add big risk if commodity prices fall. Newcrest knows this only too well after piling on debt leading up to the gold price collapse in 2013 and 2014.
The company seems to have learned its lesson. At 30 June 2019 Newcrest had borrowings of US$2 billion on its balance sheet and cash of US$1.6 billion.
This is far more conservative than the ballooning US$4 billion of debt the company held at the same point in 2014 when the price of gold was plunging.
3. What is Newcrest Mining’s cost of production?
One of the few competitive advantages a gold producer can hold is minimising its costs.
The scale that Newcrest operates on, as well as its geographic mix, helps to make it one of the best low-cost ASX listed gold producers. For the year to 30 June 2019, Newcrest had an average All-In Sustaining Cost (AISC) per ounce of just US$738 per ounce (around $1,091), compared to Northern Star’s AISC of AU$1,296 per ounce.
Having a lot of gold, conservative gearing and low cost production are highly attractive attributes for a resource producer. Personally, I don’t think the Newcrest share price offers much value at its current price, but the company looks well positioned to endure inevitable ups and downs that come with commodity prices.
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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.