Gold and copper miner Newcrest Mining Limited (ASX: NCM) has today announced a largely positive half year result for the six months to 31 December 2014 (1H14). If you listened closely you could almost hear the collective sigh of relief from investors.
Although revenue was down 5% to $2.011 billion, profit after tax rose from $40 million to $200 million and, pleasingly, free cash flow rebounded, opening up options to grow and repay debt. All of the big miner's operations generated positive free cash flow for the period and no major impairments or write-downs were reported.
The results announcement reaffirmed Newcrest's recent guidance upgrade on production and costs for the full-year which increased the outlook for gold production to between 2.3 and 2.5 million ounces. This increased both ends of the production range by 100,000 ounces and could result in Newcrest beating full-year 2013 gold production of 2.4 million ounces.
Newcrest also provided an update on the company's estimates on reserves. Gold ore reserves, the volume of gold that is economically and technically possible to recover, were reduced by 3 million ounces to 75 million ounces, which was attributed to depletion from mining. Based on full year production for FY13, this indicates Newcrest has a reserve life of slightly over 31 years.
What the result means for investors
The results were promising for investors driven by positive operational performance, upgraded guidance and increased free cash-flow.
As expected, no dividend was declared, but the cash will be used instead to pay down the company's big debt burden. Newcrest poured US$220 million into debt payments, but the fall in Aussie dollar relative to the US dollar means gearing increased very slightly from 33.8% at 30 June 2014 to 33.9%.
The results also mean a tentative return to exploration spending for Newcrest. The company is eyeing up 'profitable growth' and will spend $50-$60 million on exploration expenditure for the full year.
Should you buy?
Shares in Newcrest opened the morning slightly down in response to the announcement, but does that make it a good time to buy?
After previously suffering billions of dollars in impairments and write-downs, Newcrest certainly appears to be in better shape today. Operations are slimmed down and Earnings Before Interest and Tax (EBIT) margins for the half year grew slightly from 20% to 21.5%.
Shares in Newcrest Mining have already surged more than 26% in 2015 and like all resource companies Newcrest is still vulnerable to fluctuations in commodity prices and currency exchange rates. However, if the gold price shows signs of climbing from its current level of US$1,223 per ounce, it is likely investors will push Newcrest's share price up with it.
