Newcrest pays dividend despite fall in profits
Gold producer Newcrest will break a three-year dividend drought and is stepping up its growth ambitions.
Gold producer Newcrest is to break a three-year dividend drought and is looking for merger and acquisition opportunities as it steps up its growth ambitions.
The moves reflect renewed confidence at Australia’s biggest listed gold producer thanks to bumper Australian gold prices and continued operational improvements delivering annual free cash flow of more than $1 billion.
The free cash flow was devoted to pulling down net debt down by 27 per cent in the June year to $US2.1 billion ($2.74bn), leaving it a far cry from peak net debt $US4bn in 2013, the last time dividends were paid.
The return to a gearing level of less than 25 per cent (it now stands at 22.8 per cent) has proved to be the trigger for the resumption of dividends, with a US7.5c-a-share payment to be made on October 18.
It is the first payment since February 2013 and is higher than the US5c that most analysts had tipped and despite the group’s underlying profit of $US323m for the June year being down from 24 per cent from $424m in 2015.
The profit was down modestly on market expectations and reflects the impact of lower average realised gold and copper prices, and the production loss at the Gosowong operation in Indonesia after a miner was trapped for eight days.
Free cash flow remained strong at $US814m, down from $US854m previously. Gold prices have moved higher from the 2016 financial year averages, giving added impetus to Newcrest’s growth ambitions.
Chief executive Sandeep Biswas — his remuneration fell from $US4.7m to $US4.6m on safety shortcomings, which he said were unacceptable to him and everyone else in the company — outlined a multi-pronged growth strategy at yesterday’s profit briefing.
He said Newcrest’s preferred growth was through early-phase exploration. That was now being stepped up to include “looking at more advanced exploration and project study opportunities’’.
On the possibility of M&A activity, Mr Biswas said that “like everyone else, we are also scanning opportunities as they come up’’.
“We will be disciplined about it. We are not in any rush, given the huge reserve life we have, particularly at Lihir (PNG) and Cadia (NSW),” Mr Biswas said.
“If there is something out there that is bolt-on and is well priced, and adds shareholder value, absolutely we will look at it.’’
But with painful memories for shareholders of the overpriced acquisition of Lihir in 2010, Mr Biswas wanted to give them an assurance.
“We will be very disciplined in our approach before progressing any investment opportunity,’’ he said.
And besides, the best near-term growth opportunities are the continuing improvement at Lihir, and the likely expansion of treatment rates at Cadia to offset the eventual decline in grades back to the stated reserves position. Treatment capacity at Cadia — it is the mainstay with a free cash flow contribution of $US482m in the June year — stands at 26 million tonnes a year.
A study in to taking it up to a permitted 32mtpa was meant to have been released yesterday. But Newcrest is holding it back until November so it can incorporate “significant value adding opportunities’’ around improving recoveries and expanding beyond 32mtpa.
Mr Biswas said the treatment expansion component of the study was about determining the “right layout that gives us the ability to expand beyond 32mtpa’’.
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