- Newcrest production in line, but costs higher
- Forecasts and targets trimmed
- Investment case remains favourable given expansion potential


By Chris Shaw

Australia's leading producer of gold and copper, Newcrest ((NCM)) updated the market yesterday on both June quarter production and the size of the Wafi-Golpu resource. The information provided largely met market expectations.

Gold production for the period was 700,000 ounces, while copper output came in at 20,100 tonnes. The latter was a little below the expectation of RBS Australia, the result being cash costs for the period were higher than had been anticipated.

As RBS notes, a higher stripping ratio at Telfer drove cash costs to $542 per ounce, this well above the broker's forecast of $470 per ounce. Helping push up costs were industry-wide pressures that drove up fuel, labour and energy costs.

To account for the higher costs, earnings estimates across the market have been trimmed. JP Morgan lowered its earnings forecasts by 6% for FY11 and Deutsche Bank by just over 1%. Deutsche has also lowered FY12 estimates by 4% given the expectation input cost pressures will continue for some time.

Macquarie forecasts have been trimmed by 2.8% this year and 3.3% in FY12. On the back of the changes to earnings estimates, consensus earnings per share (EPS) numbers for Newcrest according to the FNArena database now stand at 143.8c this year and 199.2c in FY12.

The changes to forecasts have resulted in changes to price targets, with JP Moran lowering its target to $47.00 from $49.00 and RBS Australia to $42.29 from $43.74. The consensus price target according to the database is $45.79, down from $46.22.

But higher production costs are not the main story at Newcrest, as the Wafi-Golpu project continues to expand its resource base. Along with the production result, Newcrest management announced a 75% increase to the Wafi-Golpu resource to 26.6 million ounces of gold and 9 million tonnes of copper.

Further increases are expected, Deutsche Bank noting the target is now 40 million ounces of gold and 15 million tonnes of copper. Currently there are 41 drilling rigs at the project, so a further update is expected in conjunction with the profit result next month.