High Gold Prices Boost Newcrest Mining Ltd Results (ASX:NCM)

Australia’s largest ASX listed gold producer, Newcrest Mining Ltd [ASX:NCM] released its 2020 full year results today.

The company clocked a $647 million statutory profit. This is a 15% increase from last year, even with lower production and higher operating costs at Cadia mine in Australia and Lihir in Papua New Guinea.

Newcrest produced 2.2 million ounces of gold for the year, a 13% decrease from last year’s production.

Newcrest Managing Director and Chief Executive Officer Sandeep Biswas said:

FY20 was a year in which we invested in the future. We invested $1.3 billion to acquire Red Chris and increase our exposure to Fruta del Norte and a further $400 million to progress our organic growth options and on exploration. We further strengthened our balance sheet to ensure we are well positioned to deliver our near-term growth options of Havieron, Red Chris and Wafi-Golpu.

High gold prices boosted profits

Newcrest benefitted from higher realised gold prices of US$1,530 an ounce, a 21% increase from last year.

Gold prices have been going higher with the pandemic but also from increased tensions between US and China, and unconventional policies from central banks around the world to fight the economic effects of the pandemic.

Gold prices have been on a run all year to reach a record high of US$2,075 an ounce. They tumbled earlier this week to below US$2,000 an ounce. At time of writing they are trading at US$1,952 an ounce.

Even with the drop this week, gold prices have still returned over 28% year-to-date.

What could happen next?

The NCM share price is trading 1.3% lower today, at $34.025, even after announcing higher profits.

It could have to do with the fact that Newcrest expects production to be lower in FY21, between 1,950 million ounces and 2,150 million ounces. The decline is due to lower production from Cadia, which produced 843koz this year, but Newcrest anticipates production to fall between 680 and 760 koz.

The company will be paying a fully franked dividend of 17.5 US cents per share, which brings the year’s dividend to 25 US cents per share, a 14% increase from last year.

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Selva Freigedo

Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Fat Tail Investment Research’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.

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