Newcrest share price sinks on drought concerns

The Newcrest Mining Limited (ASX: NCM) share price is struggling today after the company released its quarterly report and raised concerns of drought conditions impacting output levels.

| More on:
a woman

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

The Newcrest Mining Limited (ASX: NCM) share price plunged more than 5% in early trade after the miner released its quarterly report for the 3 months ending 31 December 2019.  In addition to providing an overview of company's performance last quarter, Newcrest also warned shareholders that drought conditions could cut production and output levels.

How did Newcrest perform for the quarter?

Newcrest reported gold production of 551koz, an 8% increase from the prior quarter. The increased production was fuelled by the company's flagship Cadia mine, which achieved its second highest quarterly gold production on record.

Newcrest also reported an improved performance in all-in sustaining cost (AISC) per ounce, which relates to the costs associated with production. Group AISC for the quarter was down $40 from the prior quarter to $859 per ounce whilst Group ASIC margin improved $60 to $597 per ounce. The improvement in AISC was driven by increased production of lower cost ounces.

In an address to shareholders, Newcrest's CEO Sandeep Biswas cited the company's Cadia mine as central to improvements in production and AISC margins. Mr. Biswas also assured shareholders that despite the Telfer and Lihir mine productions coming in below expectations, corrective plans are being put in place to improve performance over the next 6 months.

Newcrest also highlighted the company's inclusion into the S&P/ASX20 index as a major accomplishment for the quarter. 

What else did Newcrest announce?

In its quarterly report, Newcrest also warned that ongoing drought conditions could result in reduced output levels before Christmas. The company's Cadia mine has implemented significant water saving measures and optimisation in order to combat ongoing and severe drought conditions in New South Wales. This revelation has stunned some investors, as analysts had previously expected water shortages to not affect output at Cadia.

Management warned that internal modelling on current water volumes indicates if rainfall remains at current 1-in-100 year lows, production could be impacted by the end of 2020. However, if rainfall remains at or above the bottom quartile of historical levels for 2020 then production is not expected to be impacted.

Cadia has been the largest contributor to Newcrest's earnings before interest an tax, contributing more than $1 billion in earnings in fiscal 2019. Drought and restricted water usage could influence the company's future of expansion for the Cadia mine that will require increased water consumption.

Management forecast gold production for the second half to be higher than the first half , with Newcrest providing guidance of 2,375 to 2,535koz for FY20.

At the time of writing the Newcrest share price is trading more than 4% lower for the day.

Should you invest $1,000 in Newcrest Mining right now?

Before you buy Newcrest Mining shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Newcrest Mining wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 7 February 2025

Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Smiling couple looking at a phone at a bargain opportunity.
Opinions

Near 52-week lows, are these ASX 300 shares now unmissable bargains?

Are these stocks at valuations that are too good to ignore?

Read more »

A businessman hugs his computer and smiles.
Opinions

If I could only buy and hold a single ASX stock right now, this would be it

This business has a lot of positives.

Read more »

A woman walks along the street holding an oversized box wrapped as a gift.
Best Shares

Top ASX shares to buy following earnings surprises

Who doesn't love a surprise?

Read more »

A runner high-fives as he crosses the finish line in pole position
Share Gainers

Here are the top 10 ASX 200 shares today

It was a woeful end to a woeful week this Friday for ASX investors.

Read more »

Investor looking at falling ASX share price on computer screen
Earnings Results

2 ASX All Ords shares crashing 16%+ on earnings updates

It's a red day for the market on Friday.

Read more »

Siblings jumping on a trampoline.
Share Gainers

3 ASX 200 stocks rocketing higher in this week's falling market

These three ASX 200 outperformers have surged 17% to 28% this week!

Read more »

Piggy bank rocketing.
52-Week Highs

ASX shares lifting to 52-week highs on Friday

Do you own any of today's winners?

Read more »

Smiling couple looking at a phone at a bargain opportunity.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »