The Newcrest Mining (ASX: NCM) share price closed 1.38% lower today despite the company doubling its net profit after tax (NPAT) for the half year ended 31 December 2018.
Profit doubles on strong Aussie dollar and record production
Newcrest reported an underlying NPAT of $237 million, up 204% from $116 million in 1H18 as a weaker Aussie dollar kept costs low for the company's Australian arm. Record sales of gold and copper from the group's Cadia Valley Operations in New South Wales and lower depreciation expenses also helped boost profitability higher.
Production numbers were also solid, with a 33% increase in copper production to ~51,800 tonnes, while revenue was broadly flat at $1.73 billion for the half.
The company also saw record production of 1.2 million ounces for its gold operations, up 6% on prior corresponding period (pcp), while its all-in sustaining cost (AISC) decreased by 13% over the half to $747 per ounce.
Free cash flow came in 31% higher at $176 million, while the company reduced net debt by 8% to $959 million during the half. The reported net-debt-to-EBITDA ratio was 14% lower at 0.6x due to the reduction in net debt, as was the company's 11.5% gearing ratio.
The company's dividend was flat at 7.5 US cents per share (cps) from 1H18.
The numbers look solid…. So why did Newcrest's share price fall?
The Newcrest share price tumbled despite the strong numbers, with investors more concerned by future earnings than past. The company reported Group Ore Reserve decreases following a detailed review of all production source during the year. The company has decreased its reserve estimates to 54 million ounces of gold (-13%), 7 million tonnes of copper (-34%) and 36 million ounces of silver (-2%).
These downwards revisions have spooked investors, with the market now pricing in lower future profitability driven by mining depletion, the removal of the Cadia Hill open pit Ore Reserve and the removal of Newcrest's 71.82% interest in the Namosi Waisoi open pit Ore Reserve.
Foolish Takeaway
Newcrest's share price drop today shows that the market believes the reserve estimate revisions outweighs the profit outperformance. With the dividend remaining flat, investors won't see the immediate upside from the outperformance and future profitability will now be revised.
For those looking to invest in gold miners, the Northern Star Resources Ltd (ASX: NST) share price has been on fire this week and could be worth a look.
