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Newcrest (ASX:NCM) share price tumbles lower following Q1 update

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The Newcrest Mining Limited (ASX: NCM) share price has taken a tumble on Thursday.

In afternoon trade the gold miner’s shares are down a sizeable 4.5% to $29.21.

Why is the Newcrest share price dropping lower?

The Newcrest share price has come under pressure today following a pullback in the gold price which has offset the release of a first quarter update that was in line with expectations.

For the three months ended 30 September, Newcrest achieved group gold production of 503,089 ounces and copper production of 34,763 tonnes. While this was down notably quarter on quarter because of major planned maintenance, it still puts the company on track to achieve its full year guidance.

This production was achieved with a group all-in sustaining cost (AISC) of US$980 per ounce, up 11.5% from the prior quarter.

Nevertheless, thanks to a similar increase in its average realised gold price to US$1,837 per ounce, the company delivered an AISC margin of 46% or US$847 per ounce.

What were the drivers of this result?

The Cadia operation delivered gold production of 196,504 ounces and copper production of 25,329 tonnes. This was achieved with a record low AISC of just US$113 per ounce.

Management commented: “Cadia’s AISC of $113 per ounce is its lowest on record, primarily driven by a higher realised copper price and timing of sustaining capital expenditure. These benefits were partially offset by lower gold production, an increase in operating costs associated with the planned shutdowns, the impact on operating costs from the strengthening of the Australian dollar against the US dollar and lower copper sales volumes.”

Over at its Lihir operation, Newcrest recorded gold production of 177,337 ounces at an AISC of US$1,283 per ounce. “Gold production of 177koz was 14% lower than the prior period primarily due to lower throughput, grade and recovery,” management explained.

The company’s Telfer operation reported gold production of 86,452 ounces and copper production of 2,384 tonnes. This was achieved with a notably higher AISC of US$1,797 per ounce. Management advised that this was due to the impact of lower gold production, an increase in site operating costs, and foreign exchange headwinds.

The Red Chris operation reported gold production of 12,636 ounces and copper production of 7,050 tonnes with an AISC of US$2,621 per ounce. This sky high AISC was driven by increased sustaining capital expenditure, higher operating costs, foreign exchange headwinds, and lower copper sales volumes.

Finally, the Fruta del Norte operation contributed gold production of 30,160 ounces for the quarter. Newcrest acquired a 32% equity interest in the operation in April.

Outlook.

Newcrest has held firm with its guidance for FY 2021. It continues to expect gold production of 1,950,000 ounces to 2,150,000 ounces. It has also retained its copper guidance of 135,000 to 155,000 tonnes for the year.

Newcrest Managing Director and Chief Executive Officer, Sandeep Biswas, commented “Consistent with prior years we executed a number of planned shutdown events across our operations in the September quarter, which is reflected in our production and All-In Sustaining Cost per ounce.”

“We expect production to be higher in the December quarter and the Company is on track to meet its FY21 production guidance. Our world-class Cadia asset continues to impress, reporting its lowest ever quarterly All-In Sustaining Cost of $113 per ounce, equating to an AISC margin of $1,724 per ounce for the quarter.”

“This showcases the strength of Newcrest’s unique technical capability as one of the few mining companies globally able to do block cave mining, which underpins Cadia’s performance,” he concluded.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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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