Is Newcrest Mining Limited the best gold miner for new money?

When it comes to investing in gold miners like Newcrest Mining Limited (ASX:NCM), is bigger better?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Eighteen months on from the first round of collapsing gold prices, Australia's gold miners are on a new low-cost war path to preserve investor returns.

For the most recent September quarter Newcrest Mining Limited (ASX: NCM), Northern Star Resources Limited (ASX: NST) and Evolution Mining (EVOLUTION FPO) (ASX: EVN) were the top three low cost gold producers. But does that make Newcrest Mining the best gold investment for new money? Perhaps.

The table below gives us an extremely clear picture of just why Newcrest Mining is the lowest cost miner with the correlation between production volume and cost. This is classic economies of scale where the miners with higher production volumes also come up trumps with lower costs.

Company Rank Production Sep Qtr 2014 (oz) AISC Sep Qtr 2014
Newcrest Mining Limited (ASX: NCM) 1 561,731 $864
Northern Star Resources Limited (ASX: NST) 2 147,884 $1,043
Evolution Mining Limited (ASX: EVN) 3 107,165 $1,083
Kingsgate Consolidated Limited (ASX: KCN) 4 53,557 $1,252¹
Beadell Resources Limited (ASX: BDR) 5 33,793 $1,307¹
Silver Lake Resources Limited (ASX: SLR)

6

29,531 $1,383²

Source: Company quarterly updates.

Notes: ¹reported in USD, converted to AUD; ²SLR Mount Monger Operations AISC only – accounts for 94.1% of production

On this basis Newcrest Mining, which earns around 85% of revenues from gold production, is the clear standout for investors. In addition to having an All-In Sustaining Cost (AISC) of just $864 for the September quarter, the company received an average gold price of $1,393 per ounce – a margin of 61% and well ahead of runner up Northern Star Resources at 34%.

It is also likely that Newcrest's cost advantage is sustainable. Newcrest has the largest pool of gold reserves of all the listed miners which should allow the company to continue its high production over the medium term.

However, one of Newcrest's biggest risks, especially compared to other listed gold miners, is its significant debt burden.

The large pile of debt and sizeable asset write-downs have pushed Newcrest's gearing levels up from just 4% in 2011 to 33.8% as at 30 June 2014. More debt increases the costs of financing, which is excluded from the World Gold Council's calculation of AISC.

Compared to Newcrest, runner up gold miner Northern Star Resources has very limited debt and has the next lowest AISC. Though, as the price of gold keeps falling that margin is slowly eroding.

Motley Fool contributor Regan Pearson does not own shares in any company mentioned.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »