The Newcrest Mining Limited (ASX: NCM) share price hasn't been one of the ASX's star performers over the financial year that's just been. Yes, today is 1 July, which means it's the first day of the 2021 financial year.
Whilst some ASX shares have performed enviably throughout FY20, others have been less rewarding. On one level, this is understandable. The coronavirus pandemic has hobbled the S&P/ASX 200 Index (ASX: XJO) highs we saw back in February when the index broke through 7,000 points for the first time. Despite a considerable recovery since the bear market, the ASX 200 was still down around 11% for FY2020.
But on another level, we should always be striving for the best performance possible for our ASX portfolios. So today, let's consider Newcrest Mining's potential for FY2021.
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How did Newcrest shares perform in FY20?
Newcrest shares were asking $31.26 on 1 July last year. Yesterday, they closed at $31.53, which tells us that Newcrest has returned 0.86% over the past 12 months. That's still pretty decent when compared with the returns of the broader market, but not as good as some other ASX shares like Afterpay Ltd (ASX: APT) or Fortescue Metals Group Limited (ASX: FMG).
This is surprising to me, considering the price of gold (which is what Newcrest mines) has had a stellar run over the past year. Gold started FY2020 at around US$1,395 per ounce and rounded out the financial year more than 27% higher at US$1,776.
Newcrest's 'performance drag' can probably be partly explained by numerous production issues it has endured over the past 12 months, which includes a scale back of production at its flagship Cadia mine.
But it also tells me that there might be some upside for Newcrest going into FY2021.
Will the gold miner take off in FY21?
I'm still very bullish on Newcrest for FY2021 and beyond. This ASX gold miner is the largest of its kind in Australia. As of its 2019 annual report, the company estimated it has gold reserves of approximately 54 million ounces across its portfolio of mines. At the current gold price of US$1,776 per ounce, this gives Newcrest's reserves a value of US$95.5 billion (or $138 billion in Australian dollars). Newcrest's current market capitalisation is around $26.3 billion. Bargain? It doesn't look like a bad deal to me.
I also think there is a strong case for the gold price over the next year or two. Due to the ongoing coronavirus crisis, together with the ultra-loose monetary policy central banks have been implementing around the world, I think demand for 'safe haven', inflation-resistant assets like gold will hold up well. Thus, I definitely think one could argue that Newcrest shares are undervalued at their current price. As such, I wouldn't be surprised if the Aussie gold miner's shares made up for their flat performance in FY20 over the coming financial year.
