'Clean result' bolsters Newcrest shares

SHARES in the goldminer Newcrest Mining rose on Friday as investors reacted positively to the lack of bad news in its half-yearly earnings,

They took the view that the worst of its woes may be behind it, with the focus shifting to the flagged rebound in production.

This drove the shares sharply higher from the outset, rising $1.17 to $24.72, and closing at the day's high.

In the December half, Newcrest earned $320 million, ahead of consensus of about $290 million to $300 million, but well down from $659 million a year earlier. Earnings a share fell to 42¢ from 86¢.

Despite the investor optimism, Newcrest remained wary about talking up its prospects, flagging that second-half production would hit the low end of its earlier guidance as it ramps up production at Cadia East in NSW as well as at Lihir in Papua New Guinea.

Earlier the company had flagged gold production of between 2.3 and 2.5 million ounces for the full year. In the December half, it produced 0.95 million ounces of gold, down from 1.17 million a year earlier.

"Achieving guidance will be primarily dependent on the speed of the Lihir plant ramp up and access to high grade ... at Gosowong," it said.

The complexity of the new plant at Lihir may make it difficult to boost output quickly, analysts said, given the legacy of the issues which have plagued the mine.

Cadia East came on stream at the start of the year, while Lihir's start up was this month.

"They've spent the money and finally it may be delivering," Geoff Breen at RBC Capital Markets said. "It was a clean result."

Settling down these two projects will go some way towards easing investor concerns following the serial problems that have hit the company over the past 18 months, particularly in the wake of the $9.5 billion Lihir acquisition in 2010.

From being the long-term darling of the local goldminers, a succession of problems, from excessive rain at Cadia to declining gold grades, has sapped investor confidence in the company.

The share prices of most goldminers have been weak over the past quarter, amid caution that the gold price will continue to decline, together with concerns that rising costs will continue to squeeze margins and shareholder returns.

Explaining the profit fall, lower gold production had the largest single impact on the downturn, accounting for $458 million of the decline, with the balance due to lower copper and silver sales, and lower metals prices.

Gearing stood at 16.9 per cent at the end of the half, which is expected to reduce as cash flow rises following the Cadia East and Lihir expansions, along with a decline in capital spending.

A steady interim dividend of 12¢ a share has been declared.