Shares in gold miner Newcrest Mining Ltd (ASX: NCM) are edging lower today and are now trading less than 1% down at $23.03.
It's been a difficult period for Newcrest investors lately, with the share price giving lumpy returns over the past 6 months. In that time it has come off a high of $27.80 and traded as low as $22.21 – its 52-week low – before recovering a small distance.
Why then, is the team at Macquarie so bullish on Newcrest Mining? And why does it see a potential valuation increase with Newcrest's increased production? Let's take a walk through and see for ourselves.
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What's Macquarie see in Newcrest?
The investment bank reckons that Newcrest gives investors a leveraged exposure to gold prices coming into FY23 and FY24, as the gold miner's Lihir mine ramps up in Papua New Guinea.
Macquarie notes that in its estimates, a 10% increase in the price of gold will transpose a 32% increase in Newcrest's earnings in the coming years.
It sees this in combination to a 20% gain in net present value (NPV) on the valuation of the site. In effect, any increase in the price of gold bodes well to Newcrest's bottom line and share price, the broker says.
Not only that, but Macquarie also reckons that Newcrest "offers leverage to copper prices, and a 10% increase in copper price translates to a 9% earnings upside and 10% valuation improvement".
Ramping up production just might be the flavour of the month for Newcrest, as it announced the NSW government had approved plans to increase capacity at its Cadia Valley gold mine, located just outside of Orange NSW, to 35 million tonnes of ore each year – up from 32 million tonnes previously.
Macquarie expected the approval, factoring this into its own commentary and analysis of the numbers in Newcrest's investment debate.
The firm values Newcrest at $34 per share and rates it as a buy right now, implying more than 47% upside potential at the time of writing.
What's the sentiment on Newcrest?
Meanwhile, Newcrest is catching the attention of more than a few other brokers as well. Out of the list of analysts provided by Bloomberg Intelligence, 11 have Newcrest as a buy, whereas just 5 are neutral on the direction of its share price.
Each of Morgan Stanley, Credit Suisse, Goldman Sachs, Jefferies, JP Morgan, Scotiabank and Morgans reckon that Newcrest has plenty more legs to grow.
Therefore it appears the sentiment on Newcrest is bullish right now, despite the spread of valuations ranging over 36% from $34 down to $25, in the same list discussed earlier.
Nevertheless, the consensus price target on Newcrest is $29.13 right now, suggesting that there is still around $6 of headroom for Newcrest to grow to its fair value based on these estimates.
The Newcrest share price is down almost 14% in the past 12 months and has fallen another 11% this year to date.
In the past month, the trend has continued and shares are down 9%, whilst dipping a further 1% in the past 5 days of trading.
