Why is Newcrest Mining Stock so Cheap?

We’re thankful for this top-performing Canadian stock in 2023 – and we think it’s about to get bought.

Andrew Willis 6 October, 2023 | 1:45AM
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Key Takeaways for Newcrest Mining Stock:

  • Newcrest Mining stock made a strong comeback in 2023 after trailing the performance of gold and copper prices for nearly 3 years - catching the attention of potential acquirer, Newmont.
  • Gold miners have been hurt by rising interest rates, along with a higher opportunity cost for holding gold.
  • Newcrest’s gold and copper mining businesses have been hit by inflation, but the balance sheets are strong and buybacks are a priority.

Why We Like Newcrest Mining Stock

This Thanksgiving, one of the investments we’d like to appreciate is Newcrest Mining stock NCM. It didn’t perform as well as Fairfax FFH or Shopify SHOP this year, but it isn’t overvalued and doesn’t have a high uncertainty rating either.

These attributes of Newcrest likely caught the eye of competitor and the world’s largest gold miner, Newmont NEM, who is seeking to acquire the company. Shareholders at Newmont and Newcrest will put it to a vote at company meetings next week on Wednesday, October 11th and Friday, October 13th, respectively. And we think investors should take the deal.

“We think Newmont is paying a fair price to acquire Newcrest,” says equity analyst Jon Mills, who thinks the deal is likely to be approved by Newcrest shareholders. Shareholders will receive Newcrest stock in the deal, which has been trading at a bigger discount to our fair value for Newcrest. Investors, like Newmont, have come to appreciate Newcrest’s low-cost, long-life mines that shine in an industry held down by rising costs.

Thankful For Gold Miner Finally Benefitting From Gold

We’re particularly pleased with the performance of our current 3rd-place performer in our coverage universe because of the stock’s recent comeback. Since its listing on Canadian markets nearly three years ago, this gold-copper producer has fallen well short of the performance of both gold and copper prices.

With a major broad market (SPDR® S&P 500 ETF (SPY)) backdrop to the performance, we can see that since the listing of Newcrest Mining stock on October 13, 2020, it has underperformed gold, represented here by gold-backed SPDR Gold Shares (GLD) as well as copper, represented by the United States Copper Index Fund (CPER).

Performance of Newcrest Mining Stock Since Inception on October 13, 2020 vs. GLD, CPER and SPY

Exhibit 1

Source: Morningstar Direct, as of September 26, 2023

While these results will differ from spot prices due to factors like fund fees and costs from rolling over futures contracts (in the case of CPER), the difference is clear. And the gap may be beginning to close. Meanwhile, it’s worth considering what will happen with Newmont shares if the acquisition goes through, since the gap with underlying commodities is much wider – Newmont stock fell around 37% over the same period.

This year, we’ve been happy to see investors catching on to Newcrest and we appreciate that the stock still looks like a buying opportunity. While the price of mining stocks aren’t always correlated with their underlying products, gold miners were hurt by higher interest rates as it raised the opportunity cost of holding gold – and shares of both companies still look oversold. 

Mining stocks might not have the same performance as copper or gold because of inflation and rising operational costs. Meanwhile, holding a metal doesn’t mean you'll get the same cash flow.

 bulls Newcrest Mining Stock Bulls Say

  • Newcrest is well-managed and has a suite of low-cost, long-life mines.
  • Gold can provide a hedge to inflation risk and offer some benefit in times of market uncertainty. Gold can gain from continued money printing and/or if there is a flight to safety.
  • Newcrest owns several world-scale deposits in Cadia, Lihir, and Wafi-Golpu. Large deposits typically bring significant exploration upside and expansion options.

bears Newcrest Mining Stock Bears Say

  • Newcrest is expanding both organically and through acquisitions. There is a risk of cost blowouts and returns from acquisitions being lower than expected.
  • Like any commodity, gold prices are cyclical and Newcrest is a price taker. This brings with it the risk of cyclically-lower gold prices impacting earnings and cash flow.
  • Gold companies attract premium valuations and market multiples that are hard to justify. In the long term, Newcrest faces a headwind to replace its depleting assets.




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About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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