A couple of weeks ago, we looked at the performance of Newcrest Mining (ASX:NCM) The stock has continued to underperform, falling further as confidence has dropped. Interestingly, Newcrest Mining’s market capitalisation (the dollar value the company’s shares are worth in total) sits at around $7.2bn – Newcrest paid a whopping $10bn for the Lihir Gold assets back in 2010!
Newcrest Mining Value
Scary as this sounds, it would suggest that these assets are now worth considerably less than was paid for them (NCM already wrote them down) but the combined value of Lihir and Newcrest is less than what Newcrest paid just for Lihir! Looking at this from a valuation basis, the stock represents outstanding value at these levels. However, this is why we don’t simply rely on valuations for trading decisions.
Newcrest Mining from a Technical and Fundamental Perspective
The chart/technicals look horrific – I shall spare you the description put forward by one of my traders, but suffice to say not one you would use in polite company! Add to that, from a fundamental perspective, falling gold prices and rising production costs are squeezing profit margins.
Newcrest Mining Management
Then there is the Newcrest management team – not a glowing performance from them of late. Lack of hedging or forward selling, in terms of gold production, a massively over the top price paid for Lihir’s assets and now the scrutiny of the regulator, well – there have to be questions asked.
In relation to this disclosure, things really do have the potential to get quite messy. Reading in yesterday’s Business Day, Newcrest have confirmed that meetings were held prior to June 7th with several investment bank analysts.
The notion of “selective” briefings is an issue, although the company has gone to great lengths to confirm that market sensitive information was not disclosed. I guess with the British Lions here on tour, State of Origin underway and the upcoming Ashes tests in England, much of the time would have been spent discussing sport, perhaps? ASIC have made inquiries and the timeline for an outcome or determination on this is likely to be months away.
Perhaps the “selectively briefed” analysts were just lucky and called it well, in terms of Newcrest’s problems – a little better than the rest of the market who’s invitation to the briefing must still be in the post.
Stock Repair Option Strategy
That said, at these levels, the stock is very cheap – for those still holding, stock repair option strategy would have to be a potential option to help get back up there, and perhaps some bottoming at these levels will help the technicals and charts look a little more appealing.
However, the big question mark remains over the company’s management. From an investor perspective, doubts over the company’s continuous disclosure procedures and the attention of the regulator, as well as the lack of hedging/forward selling and ill fated inflated purchase of Lihir, may prompt many to give the stock the swerve, despite the attractive valuation levels. After all, it is cheap for a reason – more people want to sell the stock than buy it. Perhaps this is as a result of the bearish coverage from the “selectively briefed analysts” – which in itself, could be another own goal by the company’s management.
For our Options Clients
For our Options Clients coming to our live bootcamp this weekend, we will be running through the performance of Newcrest from an analysts perspective, providing the key milestones and check boxes to look for.