It may never make Warren Buffett's company watch list, but gold miner Newcrest Mining (ASX: NCM) appears to be showing signs of promise despite a barrage of problems in the industry. The company has been dodging high costs and low gold prices, giving it three indicators that suggest it could be a buy.
1. All-in sustaining costs
The big question of all gold producers has been their ability to slash all-in sustaining costs. This is the sum of cash operating costs plus royalties and company overheads.
Newcrest announced a pleasing reduction to its all-in sustaining costs for the third quarter, down $190 per oz (or 15%) on the 2013 financial year average to $1,093 per oz. This was a result of slashing overhead and corporate costs throughout the year.
Newcrest's costs still sit above Northern Star Resources's (ASX: NST), which announced an all-in sustaining cost of $996 per oz for its September quarter, and the market will be able to compare both companies to Silver Lake Resources (ASX: SLR), which will announce its September quarterly result shortly.
At an average realised gold price of $1,442 per oz for the quarter, Newcrest would have made a gross margin of $349 per oz, or 24%. The question now is if this margin is sustainable. Given the current gold price of US$1,316 (A$1,361) and the recent appreciation in the Aussie dollar it could slip going forward.
2. Increased production
Newcrest's quarterly gold production was up 27% on Q3 2012 to 586,573 oz. This was 9% below June 2013 quarter, but a positive sign that the company's cost cutting measures have not dented output.
3. New management
Two of those responsible for steering the Newcrest ship into the storm that battered the company's share price earlier this year will be replaced over the coming 12 months. Don Mercer is set to be replaced as chairman in December, while CEO Greg Robinson will be succeeded by Sandeep Biswas in the second half of 2014.
As the saying goes "a new broom sweeps differently" and investors will be hoping the fresh command will add to the efficiencies created thus far.
Foolish takeaway
Newcrest still faces various problems, not least of which is a $120 million increase to the company's FY14 tax obligations. However the company maintained its previously issued production guidance for the year of between 2.0 to 2.3 million ounces of gold and 75-85 thousand tonnes of copper, and with a profitable margin on each ounce of gold it produces, there are emerging signs it could be time to buy.
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More reading
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- 3 companies to buy and hold for 20 years
- Is Newcrest Mining making money off gold at $1276 an ounce?
Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned.
