The Newcrest Mining Limited (ASX: NCM) share price has started the week lower following the release of its full-year results.
At the time of writing the gold miner's shares are down almost 1% to $21.70.
Here are a few key takeaways from the release:
- Gold production of 2.4 million ounces at a group all-in sustaining cost of US$787 an ounce.
- Average realised gold price of US$1,263 an ounce.
- Revenue up 6% to US$3,477 million and underlying profit up 22% to US$394 million.
- Free Cash Flow of US$739 million.
- Net debt reduced by 29% to US$1.5 billion.
- Earnings per share of 40.2 U.S. cents.
- Full-year dividend of U.S. 15 cents per share, 70% franked.
All in all, I believe this was yet another strong result from Australia's leading gold miner and came courtesy of strong performances from its Lihir and Cadia operations.
Even though its all-in sustaining cost rose slightly to US$787 an ounce, Newcrest remains one of the lowest cost producers on the local share market. It also means three successive years of all-in sustaining costs below US$800 an ounce.
This makes its operations extremely profitable when the gold price is as high as it is right now, allowing the company to deliver high levels of free cash flow.
This will be used to pay a full-year 15 U.S. cents dividend, roughly equivalent to a 1% yield at today's price. In the future management aims to pay out 10% to 30% of its free cash flow as dividends, with a minimum payout of 15 U.S. cents.
In FY 2018 management has provided production guidance of 2.4 million to 2.7 million ounces of gold and 80 to 90kt of copper, with its all-in sustaining costs expected to rise slightly.
Should you invest?
As I said last week, whilst I think Newcrest is arguably the best gold miner on the ASX, I'm not a fan of its valuation.
Based on today's result, Newcrest's shares are changing hands at 42x full-year earnings.
While I believe its high quality assets and strong free cash flow generation means it deserves to trade at a premium to the industry average, I think this premium is overly excessive.
This could put its shares at significant risk of a sharp decline in the future if the gold price tumbles.
With that in mind, I would suggest investors looking for exposure to the industry consider its cheaper rivals St Barbara Ltd (ASX: SBM) and Resolute Mining Limited (ASX: RSG) which trade at under 10x forward earnings.
