The Newcrest Mining Limited (ASX: NCM) share price is plummeting today. Shares of the ASX's largest gold miner are down 7.74% at the time of writing to $26.92 a share. Newcrest shares were almost at the $30 mark just yesterday but are now back to levels we saw at the start of the month.
Why is the Newcrest share price plummeting?
According to reporting in the Australian Financial Review (AFR), Newcrest's gold production is set to slump to the lowest levels since 2013. The culprit? Newcrest's lucrative but troubled Lihir mine in Papua New Guinea. Newcrest is now expecting production rates at Lihir to come in between 17-20% lower than expected.
The mine is situated within an extinct volcano, meaning the mine typically has to deal with geothermic activity and high-temperature mining conditions. Lihir is Newcrest's largest mine in terms of production, so this news doesn't bode well for the gold miner's bottom line.
The AFR also reports that Newcrest's Telfer mine in Western Australia is also struggling, with Newcrest expecting a 10% downgrade on production levels there as well. All in all, Newcrest is now expecting its stable of mines to produce between 2.1 million and 2.2 million ounces of gold in FY20 – down from previous expectations of 2.37 million to 2.53 million ounces.
It's a disappointing day for Newcrest shareholders to be sure. Gold is currently at historically high levels – especially in Australian dollar terms (where it is sitting at record highs). These production delays mean Newcrest might not be able to capitalise on these prices, which could very well drop back in the future by the time mine production returns to full capacity.
Is Newcrest a buy at the current share price?
Gold miners are always a risky industry to tangle with – they rarely pay healthy dividends and the miners' stock prices can move wildly when the gold price fluctuates. Saying that, I think the current share price moves might be a good opportunity for Newcrest shares.
Gold that isn't mined today doesn't vanish and can always be mined tomorrow and I personally see more reasons for gold to go higher than lower over the next few years. Newcrest also has comparatively low mining cost-per-ounce of US $738, which will help it weather any short-term pains, in my opinion.
Therefore, I think Newcrest is showing some value today, and I'll be watching the share price with great interest for any further weakness.
