What Happened to the Newcrest Mining Share Price?
Shares of Newcrest Mining [ASX:NCM] rose by 5.46% to $9.27 today.
Why Did This Happen to NCM Shares?
Newcrest is a leveraged play on the gold price. In my opinion, it will be the most volatile stock in the ASX200 during 2015. That said, the gold price is now trading at US$1,169 (AU$1,352) per ounce. A break below AU$1,300 — likely to come next year — will be a terrible signal for the Aussie gold producers.
This is no surprise to Diggers and Drillers readers.
For months I’ve shown significant analysis on gold and silver to Diggers and Drillers readers. Using both fundamental and technical analysis, I’ve explained on a regular basis how the gold price will hit US$931 per ounce next year. At the much lower exchange rate of AU75 cents per USD, this equates to a gold price of AU$1,241 per ounce.
Money Morning readers also received some analysis on this when gold was trading at US$1,350 per ounce on 15 August 2014.
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That said, doing the maths, at the company’s low forecast, next year, all-in capital costs should rise to AU$3.02 billion from AU$2.74 billion last year (that includes non-essential capital and exploration costs).
For Newcrest to truly breakeven in 2015, it will likely need a gold price of roughly US$1,250 (AU$1,344). Below this price, the company should generate negative free cash flow.
Given my analysis shows that the gold price will fall to US$931 per ounce early next year, this won’t bode well for Newcrest shareholders. In fact, I’ve provided more analysis to Diggers and Drillers readers showing the price of gold will likely go much lower than US$931 per ounce.
Gold bugs are going to be in for a one hell of a year in 2015.
What Now for Newcrest Mining Ltd?
Newcrest has an uncomfortable amount of debt on its balance sheet. However, the later debt maturity dates will see the company succeed in the long run.
In the short term, it’s a risky story. This will bring significant volatility to the share price next year.
Newcrest needs to make a US$350 million dollar debt payment in 2016. And if you think that the company can cover this with its existing cash balance, think again. Right now the company has less than half this amount in cash.
Newcrest NEEDS a higher gold price to repay its debt — either that or raise capital.
And keep in mind, Newcrest’s breakeven price is US$1,270 per ounce. At the current gold price level, Newcrest is generating negative free cash flow — this is the real risk. And a lower gold price will only magnify the company’s losses.
Newcrest knows that it’s in an awkward position and has reduced its capital costs by more than 70% since 2012.
Now, forget about that US$350 million debt repayment due in 2016. Newcrest will need to pay another US$1 billion payment a year later!
Gold will likely be at a much higher level by 2017…but will it be high enough to save the company from an even larger capital raising down the track?
2015 won’t be a good year for Newcrest shareholders — or anyone who holds precious metal stocks. They should be praying for a falling Aussie dollar to help the company. In my view, Newcrest will be raising capital at much lower prices.
On the 25th of September 2014, Newcrest was trading at $10.32 per share. At this time, I gave analysis to Money Morning readers showing that the share price could fall to $4.72 in 2015. The technical analysis still stands.
Jason Stevenson+
Resources Analyst, Money Morning
The post Why the Newcrest Mining Share Price Rose Today appeared first on Stock Market News, Finance and Investments | Money Morning Australia.
