Last week Newcrest Mining Limited (ASX: NCM) released a production update for the most recent December quarter. Although it wasn't a full quarterly update it gave investors hope that the shambles of 2013, which saw over 70% of the company's market value wiped out, is behind it. For prospective Newcrest investors there are several key points to be aware of for the year ahead.
Production up
The December production update augured well for a positive 2014. Gold production for the quarter was up 26% over 2012, from 492,906 ounces to 621,125 ounces of gold. Newcrest also maintained its guidance for full-year gold and copper production, with gold production expected to be around the top end of the 2.0 – 2.3 million ounce guidance range, subject to market and operating conditions. This would be an increase over FY13's total production of 2.1 million ounces.
All eyes on costs
Costs will be heavily scrutinised when the quarterly report does come out, with costs being the other crucial side of Newcrest's profitability equation.
The company's target in 2014 is to maximise short-term cash flow, and positive progress was made towards having lower all-in sustaining costs in the latter half of 2013. All-in sustaining costs are the best way to evaluate a gold producer's cost base and compare different companies, because it includes both operating costs and overheads which can differ considerably between companies.
For the September quarter, Newcrest's all-in sustaining costs were down 15% from the 2013 average, but still higher than other gold miners, including Alacer Gold Corp (ASX: AQG) and Northern Star Resources Ltd (ASX: NST). The hope is that this cost reduction momentum will continue into the December quarter.
For 2014, the general analyst consensus is for gold prices to remain at current levels, or fall further on the back of a strengthening U.S. economy and the trimming of the Federal Reserve's bond-buying program. The effect of this will be to constrict operating margins for gold miners and increase the significance of low-cost operations.
Foolish takeaway
Newcrest has stated that its objective for FY14 is to be cashflow positive at a gold price of $1,450 per ounce. A falling Aussie dollar and slight lift in gold price from today's US$1,251 ($1,425) per ounce will see the company achieve that. So in spite of the bearish outlook for gold prices in 2014, an up-tick in the price of gold could send Newcrest shares soaring.
