Newcrest. Earnings and target price revision. Price catalyst. Action and recommendation

Transcription

1 AUSTRALIA NCM AU/NM CN Outperform Price (at CLOSE#, 29 Aug 2012) A$26.70/C$27.00 Volatility index Low/Medium 12-month target A$ 32.00/C$ month TSR % Valuation A$ 31.96/C$ DCF (WACC 5.0%, beta 1.1, ERP 1.1%, RFR 3.8%) GICS sector Materials Market cap A$m 20, day avg turnover A$m 71.7 Number shares on issue m Investment fundamentals Year end 30 Jun 2012A 2013E 2014E 2015E Revenue m 4, , , ,951.1 EBIT m 1, , , ,445.4 Reported profit m 1, , , Adjusted profit m 1, , , Gross cashflow m 1, , , ,607.9 CFPS CFPS growth % PGCFPS x PGCFPS rel x EPS adj EPS adj growth % PER adj x PER rel x Total DPS Total div yield % Franking % ROA % ROE % EV/EBITDA x Net debt/equity % P/BV x NCM AU vs ASX 100, & rec history Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, August 2012 (all figures in AUD unless noted) 30 August 2012 Golpu Examining the options Event released a summary of its Golpu PFS that included an increased and Resource statement. For our prior reports on Wafi-Golpu including our site visit please see the following reports: Wafi-Golpu: a world class asset - 4 April 2011 Further upside at Wafi-Golpu - 14 September 2010 Impact Still a lot of unknowns. What was very clear on both the and Harmony investor calls was that the current PFS is an indicative guide only and that there are several areas where the project is likely to be improved from an economic standpoint. We have examined the upside scenarios presented by as part of the announcement. Metallurgical recoveries the biggest swing factor. The single largest impact on our valuation is driven by improved gold recoveries which would increase our base-case valuation of Golpu (derived from the PFS parameters) by 15% to A$8.4bn from A$7.3bn. Golpu attributes A$3.71 to our valuation. While there are a multitude of potential outcomes from the above scenarios we model a mix of marginal improvement outcomes to grade and recoveries to derive our valuation for Golpu of A$8.1bn. That said, we currently only assume a 35% carrying interest for in light of the PNG government s intention to exercise its option for 30% of the project. We value s likely 35% share of the project at A$2.8bn or A$3.71/share (~12% of our NCM valuation). This valuation is a downgrade from our previous valuation of A$5.25/share, primarily as a result of lower metallurgical recoveries we have downgraded our forecast from 85% Au recoveries to 65%. Earnings and target price revision FY13: 0.0%; FY14: +0.2% and FY15: +1.6% on change of Golpu capex profile. Price catalyst 12-month price target: A$32.00/C$34.00 based on a Forward Curve DCF methodology. Catalyst: Investor day, CVO & Lihir Island site visits in early October. Action and recommendation Outperform. Although we have marginally downgraded our valuation for Wafi-Golpu, we see the improved clarity on the project (capex, timing, plant capacity) as a net positive. We believe that the headwinds for are to the upside in the near term as we see a constant flow of likely positive newsflow over the coming months including: Investor day in early October; and Golpu report in mid-october. Please refer to the important disclosures and analyst certification on inside back cover of this document, or on our website

2 Valuation The PFS doesn t reflect the likely reality What was very clear on both the and Harmony investor calls was that the current PFS is an indicative guide only and that there are several areas where the project is likely to be improved from an economic standpoint. We concur with this view, however, believe that there will likely be a raft of changes to the final parameters: some of them positive and some of them negative. We have therefore examined the range of upside scenarios delineated by including: Base case; Improved grade of lift 1; Improved gold recoveries; Accelerated ramp-up; Increased mill capacity; Lift 3; and The enhanced production case (incorporating all of the above scenarios). The single largest impact on our valuation is driven by improved gold recoveries which would increase the base-case valuation of Golpu by 15% to A$8.4bn from A$7.3bn. If we assume that all improvements are achieved seamlessly as part of the enhanced production case, the cumulative impact on the base-case valuation is to increase it by 30% to A$9.5bn. Fig 1 Upside scenarios from PFS base case demonstrate several significant incremental improvements Case Description PFS Base Case Improved Grade of Lift 1 Improved gold recovery Accelerated ramp up Increased mill capacity Lift 3 Enhanced production case Lift 1 Modified Grade 0.85/t Au 1.3% Cu Modified Grade 0.85g/t Au 1.19% Cu 1.19% Cu 1.19% Cu 1.19% Cu 1.19% Cu 1.19% Cu Lift 2 Lift 3 n/a n/a n/a n/a n/a Depth Expansion Depth Expansion Mill 22mtpa 22mtpa 22mtpa 22mtpa 25mtpa 22mtpa 25mtpa Throughput Ramp up Standard Standard Standard Accelerated Standard Standard Accelerated Metallurgical recovery Au - 70% Au - 70% Macquarie NPV for 100% of Golpu A$7.3bn A$7.5bn A$8.4bn $7.6bn A$7.9bn A$7.4bn A$9.5bn Source: Mining, Harmony, Macquarie Research, August 2012 While much is likely to change between now and initial production we model a mix of marginal improvement outcomes to derive our valuation for Golpu of A$8.1bn. That said, we currently only assume a 35% carrying interest for in light of the PNG government s intention to exercise its option for 30% of the project. We value s likely 35% share of the project at A$2.8bn or A$3.71/share. This attributes ~12% to our valuation. 30 August

3 Capex estimates below our forecast We were previously forecasting capex of US$6bn on a 100% basis to bring Golpu into production, significantly above the indicative guidance range of US$3-5bn for the project. Despite indicating the potential for a reduction in the capital estimate in light of the current economic environment we maintain our conservative capex forecast given the timeframe over which the project will be developed. As a result of the detailed capex profile for the development of Golpu out to FY20 (published by Harmony) we have revised the structure of our capex profile delaying its peak into FY18. Fig 2 Golpu Capex profile peaks in FY18 100% basis, US$m 1,800 1,600 1,400 1,200 1, US$m FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Source: Harmony, Macquarie Research, August 2012 Fig 3 Delineated project spend Advanced exploration works and studies Project construction Total Direct costs Mine Process plant Infrastructure Power supply Total direct costs 453 2,196 2,649 Indirect costs Project management Owners costs Drilling and studies Total indirect costs ,758 Contingency Total capital costs 1,377 3,468 4,845 Source: Mining, Harmony, Macquarie Research, August 30 August

4 Upside scenarios justified Modified grade On current reserve estimates, the gold grade of the ore to be mined as part of lift 1 is significantly lower than lift 2. Fig 4 Based on current Lift 1 has much lower gold grade than lift 2 Potential production rate Mt Grade Contained metal mtpa Au g/t Cu % Au moz Cu Mt Lift Lift Total Source: Harmony, Macquarie Research, August 2012 That said as part of the Harmony conference call on Wafi-Golpu the company spoke to three recent drill holes into the upper part of Golpu which hit high grade mineralisation that is not included in the /Resource upgrade provided today. If these are included we believe there is upside potential to the current Lift 1 grade of up to 0.85g/t Au and 1.3% Cu. In our valuation, we model grade of 0.75g/t Au and 1.25% Cu. Fig 5 Resource shell demonstrates limited areas of higher grade shell within Lift 1 ore body Fig 6 Recent drill results, not included in / Resource upgrade, demonstrate significant high-grade hits in the upper extremities of Golpu Lift 1 Source: Harmony, Macquarie Research, August 2012 Improved gold recovery As we have noted the metallurgical recoveries are one of the largest drivers of potential movement in our Golpu valuation. Current metalurgical recoveries for gold range between 51-66%. In the upper part of the ore body the gold recoveries are at their lowest. That said, the suite of processing and reagent options have not been optimised at this PFS stage of the development. With so much at stake from a valuation perspective and given the limited amount of focus that has been applied to the recoveries to date we believe there is likely some upside to current LoM recoveries of 61%. That said, while has indicated that this could be well above 70%, we conservatively model 65% recoveries for the LoM. 30 August

5 Accelerated ramp up In the PFS, production from Lift 1 is scheduled to ramp up to 15mtpa over a four-year period commencing in 2019 with development of Lift 2 undercut and initial production scheduled to commence in Production from Lift 2 would be progressively ramped up to reach 22mtap in Mining from Lift 1 would be suspended in 2028 with remaining ore from Lift 1 recovered through overdraw of Lift 2. Fig 7 Conservative portal and draw level development rates are currently assumed in the base case ramp-up Source: Mining, Macquarie Research, August 2012 Increased mill capacity The PFS base case assumes rates that are based on development and mining rates that are thos below those being achieved at Cadia Valley. As such, with its current skill set and potential improvements in technology it is feasible that the increased ramp-up and production are achievable. Lift 3 The mineralisation continues below the current resource and with the limited drilling to date the grade appears to increase at depth. As such the likelihood of being able to conduct a third lift or increasing the column of lift 2 appears likely as further information comes to light. Fig 8 Lift 3 not yet at the required level of drilling to include in the PFS Source: Mining, Macquarie Research, August August

6 Likely to be diluted to 35% by PNG government Consistent with the current administrative practice, the Government of Papua New Guinea has reserved the right to acquire up to a 30% equity interest in the project. In January 2011, the PNG government indicated an intention to exercise the option, nominating the State-owned Petromin PNG Holdings to take up the interest. In the event the PNG government exercises its option in full, s interest in Wafi-Golpu would be reduced to 35%. Fig 9 Ownership structure Current vs Post PNG government exercise of option PNG Government 30% Harmony 50% 50% 35% Harmony 35% Source: Mining, Macquarie Research, August 2012 The option is exercisable at any time prior to the grant of the mining lease/special mining lease for Wafi-Golpu. Under the terms of the option, the price payable for the interest is the proportionate share of the exploration sunk costs at the point of exercise. Post-exercise, the State holding entity will be responsible for its proportionate share of continuing development and project costs. We see the PNG government taking an equity stake in the project as a positive, as we believe it would align the government s interest with those of and Harmony shareholders with regard to the timing and delivery of the project. 30 August

7 koz $m A$/oz Macquarie Private Wealth (NCM.ASX / NM.TSX) Share price: AUD $26.70 CDN $27.00 Target price: AUD $32.00 CDN $34.00 Income statement 2010a 2011a 2012a 2013e 2014e 2015e Gold production (koz) 2010a 2011a 2012a 2013e 2014e 2015e Revenue 2,801 4,102 4,416 4,733 5,341 4,951 Telfer open pit Other Revenue Telfer u/g Total Revenue 2,802 4,102 4,416 4,734 5,341 4,951 Telfer total Total cost of sales (inc deferred) -1,268-1,900-2,065-2,133-2,358-2,566 Cadia Exploration Ridgeway Administration Cadia East Other expenses/(income) Cadia Valley Operations Operating EBITDA 1,428 2,059 2,151 2,423 2,798 2,184 Wafi-Golpu Depreciation and amortisation Gosowong Operating EBIT 1,127 1,544 1,590 1,823 2,118 1,445 Hidden Valley Finance costs - ordinary activities Lihir Island Interest received Bonikro EBT 1,106 1,508 1,549 1,592 1,921 1,242 Cracow Tax Mt Rawdon Minority interest Total gold production 1,762 2,702 2,286 2,303 2,662 2,920 Adjusted NPAT 763 1,058 1,084 1,054 1, Significant items (post tax) Copper production (kt) 2010a 2011a 2012a 2013e 2014e 2015e Reported NPAT ,117 1,054 1, Telfer open pit Adjusted NPAT growth 58% 39% 2% -3% 20% -35% Telfer u/g Telfer total Cadia Adjusted EPS (A$/share) Ridgeway EPS growth 51% -5% -4% -3% 20% -35% Cadia East DPS ($ps) Cadia Valley Operations Dividend Yield 0.9% 1.9% 1.3% 1.5% 1.1% 0.7% Wafi-Golpu Total copper production Cashflow 2010a 2011a 2012a 2013e 2014e 2015e Cash costs (A$/oz) 2010a 2011a 2012a 2013e 2014e 2015e Operating cashflow 1,303 1,729 1,726 1,874 2,058 1,565 Telfer total Capex ,166-2,511-1,857-1,069-1,008 Cadia Valley Operations Exploration Wafi-Golpu Other Gosowong Investing cashflows ,294-2,755-2,017-1,229-1,158 Hidden Valley Net borrowings , Lihir Island Dividends Bonikro Equity Cracow Other Mt Rawdon Financing cashflows , Total cash costs/oz Net increase / (decrease) in cash Balance sheet 2010a 2011a 2012a 2013e 2014e 2015e Capex (A$m) 2010a 2011a 2012a 2013e 2014e 2015e Cash and cash equivalents ,212 2,066 Telfer Other 767 1,357 1,222 1,321 1,321 1,321 Cadia Valley Operations 260 1,096 1, Current assets 1,411 1,542 1,464 2,055 2,533 3,388 Wafi-Golpu Property, Plant and Equipment 1,764 3,310 4,364 5,622 6,011 6,281 Gosowong Exploration, evaluation and development 2,556 7,675 8,795 8,891 8,987 9,073 Hidden Valley Other 603 4,694 5,398 5,398 5,398 5,398 Lihir Island Non-current assets 4,923 15,740 19,045 20,399 20,884 21,240 Bonikro Total Assets 6,334 17,282 20,509 22,454 23,418 24,628 New projects Current debt Cracow Long term debt Mt Rawdon Other 898 2,607 3,007 3,256 3,150 2,967 Total capex 594 1,930 2,195 1,857 1,069 1,008 Total Liabilities 1,324 3,407 5,415 6,592 6,486 7,010 Shareholders' Equity 5,010 13,875 15,094 15,862 16,932 17,618 Ratio Analysis 2010a 2011a 2012a 2013e 2014e 2015e s Tonnes Grade Metal Total debt (mt) Au (g/t) Cu (%) Au (moz) Cu (mt) Ag (moz) Net Debt/Equity -4% 4% 14% 16% 13% 11% Cadia open pit ND to ND+E -5% 4% 13% 14% 11% 10% Ridgeway EBIT Net Interest Cover Cadia East underground 1, Net Interest Cover Total Cadia 1, Payout Ratio 16% 34% 25% 29% 18% 19% Main Dome (open pit) West Dome (open pit) EBITDA margin 51% 50% 49% 51% 52% 44% Telfer open pit EBIT margin 40% 38% 36% 39% 40% 29% Telfer Deeps underground EV/EBITDA (fixed debt) Total Telfer EV/EBITDA (prospective) Lihir Island Lihir Island stockpile GCFPS (A$/share) $1.77 $1.86 $2.19 $2.16 $2.55 $2.04 Total Lihir Island PGCFPS Bonikro FCF Yield 4% -2% -4% 0% 5% 3% Gosowong PER Hidden Valley JV (attrib) ROE (NPAT/Equity) 11% 7% 7% 7% 7% 5% Golpu JV (attrib) ROCE (EBIT/Debt + Equity) 21% 11% 9% 9% 10% 7% Namosi JV (attrib) Number of shares outstanding Marsden JV (attrib) GRAND TOTAL 3, NPV summary at 5% A$m A$/sh A$m A$/sh A$m A$/sh Assumptions FY10 FY11 FY12 FY13 FY14 FY15 Macquarie Spot Forward Macquarie Telfer , Gold (US$/oz) 1,068 1,371 1,684 1,925 1,888 1,538 Cadia Copper (US$/lb) Ridgeway 1, , , Silver (US$/oz) Cadia East 8, , , A$/US$ Lihir Island 4, , , Wafi-Golpu 4, , , Spot Hidden Valley , Gold (US$/oz) 1,068 1,371 1,684 1,610 1,610 1,610 Gosowong Copper (US$/lb) Bonikro Silver (US$/oz) Evolution A$/US$ Exploration 1, , , Corporate -1, , , Forward curve Current interest bearing liabilities Gold (US$/oz) 1,068 1,371 1,684 1,674 1,697 1,727 Non-current interest bearing liabilities -3, , , Copper (US$/lb) Cash (and cash equivalents) Silver (US$/oz) Total 18, , , A$/US$ NPV prem/(disc) to share price -8% -13% 20% Market cap (A$b): 20,426 Cash Capex Borrowings Gearing 4,500 20% Telfer total Cadia Valley Operations Gosowong Cracow Hidden Valley Lihir Island Mt Rawdon Bonikro Total cash costs/oz 4,000 3,500 3,000 2,500 2,000 1,500 1, % 10% 5% 0% -5% 3,000 2,500 2,000 1,500 1, FY09a FY10a FY11a FY12a FY13e FY14e FY15e -10% a 2011a 2012a 2013e 2014e 2015e 0 Source: Mining, Macquarie Research, August August

8 Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie First South - South Africa Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of Russell 3000 index return Neutral (Hold) return within 5% of Russell 3000 index return Underperform (Sell) return >5% below Russell 3000 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down % in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 40 60% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 30 40% in a year. Low medium stock should be expected to move up or down at least 25 30% in a year. Low stock should be expected to move up or down at least 15 25% in a year. * Applicable to Australian/NZ/Canada stocks only Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 30 June 2012 AU/NZ Asia RSA USA CA EUR Outperform 55.67% 61.00% 53.43% 42.58% 69.23% 46.60% (for US coverage by MCUSA, 9.05% of stocks followed are investment banking clients) Neutral 30.50% 22.11% 36.99% 52.41% 28.02% 33.69% (for US coverage by MCUSA, 8.14% of stocks followed are investment banking clients) Underperform 13.83% 16.89% 9.59% 5.01% 2.75% 19.71% (for US coverage by MCUSA, 0.45% of stocks covered are investment banking clients) Company Specific Disclosures: Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of Mining Limited's equity securities. Macquarie Bank Limited makes a market in the securities in respect of Mining Limited. Macquarie Capital Advisers Limited is acting as financial adviser to Catalpa Resources Limited in relation to its all-scrip merger of equals with Conquest Mining Limited and concurrent acquisition of Mining Limited s interests in the Cracow and Mt Rawdon gold mines as announced on 15 June Macquarie Bank Limited makes a market in the securities in respect of Mining Limited. Important disclosure information regarding the subject companies covered in this report is available at Analyst Certification: The views expressed in this research reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst principally responsible for the preparation of this research receives compensation based on overall revenues of Macquarie Group Ltd (ABN , AFSL No ) ( MGL ) and its related entities (the Macquarie Group ) and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. General Disclosure: This research has been issued by Macquarie Securities (Australia) Limited (ABN , AFSL No ) a Participant of the Australian Securities Exchange (ASX) and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Equities Limited (ABN , AFSL No ) ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited ( MENZ ) an NZX Firm. Macquarie Private Wealth s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN , AFSL No ) ( MBL ) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. None of MBL, MGL or MENZ is registered as a bank in New Zealand by the Bank of New Zealand under the Bank of New Zealand Act Any MGL subsidiary noted in this research, apart from MBL, is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia) and that subsidiary s obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. This research is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice, you should consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This research has been prepared for the use of the clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient, you must not use or disclose this research in any way. If you received it in error, please tell us immediately by return and delete the document. We do not guarantee the integrity of any s or attached files and are not responsible for any changes made to them by any other person. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. This research is based on information obtained from sources believed to be reliable, but the Macquarie Group does not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. The Macquarie Group accepts no liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. The Macquarie Group produces a variety of research products, recommendations contained in one type of research product may differ from recommendations contained in other types of research. The Macquarie Group has established and implemented a conflicts policy at group level, which may be revised and updated from time to time, pursuant to regulatory requirements; which sets out how we must seek to identify and manage all material conflicts of interest. The Macquarie Group, its officers and employees may have conflicting roles in the financial products referred to in this research and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The Macquarie Group s employees or officers may provide oral or written opinions to its clients which are contrary to the opinions expressed in this research. Important disclosure information regarding the subject companies covered in this report is available at 30 August