Newcrest Mining Limited (ASX: NCM) is making the most of the gold rush. The company's recent debt offering has excited US bond investors.
Newcrest is offering 2 tranches of senior secured bonds. The first is US$650 million worth of 10-year bonds with an annual coupon of 3.25%. The second is US$500 million of 30-year notes with an annual coupon of 4.2%. A senior bond takes precedence over other debts in the event that the company declares bankruptcy.
Sandeep Biswas, Newcrest Managing Director and Chief Executive Officer, said the following in the company's ASX release:
"I am pleased with the very strong demand for Newcrest credit which has enabled us to secure long-term debt at coupons much lower than that on our existing corporate bonds. This has allowed us to restructure and extend our debt maturity profile to better match our long asset life".
The profitability of trust
The recent debt funding initiative follows a very successful capital raising via a share purchase plan worth $1 billion. Newcrest has built a reputation for prudent financial management of its assets under the management of Sandeep Biswas since 2014.
On 30 April, it announced the canny acquisition of prepay and stream facilities and an off-take agreement in respect of Lundin Gold's Fruta del Norte mine for US$460 million. This is on top of the company's existing stake of 32% in mine owner, Lundin Gold.
This agreement provides Newcrest with access to 1.9 million ounces of gold over the life of the mine.
Deal making like this has been evident in Newcrest's recent purchases. These include the Canadian Red Chris mine, where the company has increased gold reserves via exploration, as well as its work-out exploration investment in Havieron, located approximately 45km from its Telfer mine site.
Exploiting the gold rush
The purchase of streaming and off-take rights provides Newcrest with the ability to maintain its already low all-in sustaining costs of $827/oz. At present, the AUD gold price remains in record territory. This is despite a recent drop as the Australian dollar rose against the USD.
Newcrest continues its strategy of investing in tier 1 gold assets, often avoiding the premiums associated with takeovers. The company's cost reduction strategies are playing out across all of its major mine sites.
It has a strong pipeline of replacement tonnes through the expansion of existing assets, and it secured a very lucrative streaming revenue stream through a debt offering lower than its current long term debt.
