The share price of gold mining giant Newcrest Mining Limited (ASX: NCM) rose as much as 3.1% this morning after the company released its production report for the March quarter.
During the three-month period, Newcrest lifted its gold production by 2.6% compared to the prior period to 636,500 ounces. This was largely bolstered by a return to full production at its Cadia mine, although that gain was partially offset by lower production at its Gosowong project following a geotechnical event that occurred in February.
Indeed, Newcrest has been one of the companies to have benefited from soaring gold prices since the beginning of the year. Its average realised gold price rose to US$1,181 per ounce sold, compared to US$1,100 in the December quarter with gold prices rising even further since that time. One ounce of the precious metal is currently going for US$1,239 an ounce, suggesting an even greater realised price for Newcrest in the June quarter.
At the same time, the company continued to improve its cost basis. Newcrest's reported all-in sustaining cost (AISC) per ounce fell by 4.5% to US$723 per ounce (again, this was largely due to the greater contribution from the low-cost Cadia mine).
Should you buy?
Newcrest has been one of the key beneficiaries of rising gold prices in recent months with its shares up almost 40% since the beginning of the year. Northern Star Resources Ltd (ASX: NST) and EVOLUTION FPO (ASX: EVO) have also risen 34% each, while St Barbara Ltd (ASX: SBM) is up 52.8%.
As is the case with almost every commodities business, these companies rely on a higher gold price to generate stronger cash flows and earnings. Thus, they also stand to benefit if the gold price does continue to rise.
The problem is, gold prices are inherently difficult to predict. So far in 2016, they have mostly been driven by fear and uncertainty facing the global economy, but they could easily fall once those fears begin to ease. If that happens, the shares of those companies mentioned above could begin to retreat, as well.
Gold prices could go either way from here and are likely to remain volatile. For what it's worth, I think there are better opportunities to take advantage of in this market – particularly after their strong run-up in price in recent months.
