Newcrest Under Pressure Post Completion of $1 Billion Institutional Placement

The gold spot has perched below USD 1,700 per ounce, and charts are showing bearish setup, at least for the near- to the medium-term. However, the gold mining front is yet aggressive in takeovers to secure high gold prices, while it lasts, and hedge future sales.

To Know More, Do Read: Gold Plunge- A Normal Correction or The End of the Glittery Shine for Now?

NCM Acquires Fruta del Norte mine

In the status quo, ASX-listed gold miner- Newcrest Mining Limited (ASX:NCM) announced that it inked an Acquisition Agreement in order to acquire two loan facilities of Lundin Gold Inc, namely the Gold Prepay, and stream facilities.

The Company also secured an offtake agreement related to Lundin Gold Inc.’s Fruta del Norte mine for the consideration of USD 460 million and structured the acquisition as a purchase of the shares of the companies, which hold the Fruta del Norte mine or the Facilities, which is a high-grade, underground gold-silver mine located in south-eastern Ecuador.

The Gold Prepay Credit Agreement secured by NCM is a non-revolving credit facility, which contains a face value of USD 150 million, and it would be repaid in cash based on the value of 218,500 ounces of gold.

The key terns of the Gold Prepay Credit Agreement are as below:

• NCM would repay nineteen quarterly payments in cash based on the spot price for 11,500 ounces of gold, from December 2020 to June 2025.
• As the quarterly cash payment based on the prevailing spot price for three months, it provides a risk collar based upon the average gold price for three months.

Apart from the Gold Prepay Credit Agreement, NCM also inked the Stream Credit Facility Agreement, which is also a non-revolving credit facility, carrying a face value of USD 150 million, and would be paid in cash, depending upon the precious metal production at the Fruta del Norte mine.

On the books of Lundin Gold, the Stream Facility was quoting a face value of USD 290 million (as on 31 December 2019), and NCM would decide the monthly re-payment on the basis of 7.75 per cent of refined gold processed in the preceding month into excess gold price over USD 400 per ounce, until it reaches 350,000 ounces.

Also, the monthly re-payment would base upon the 100 per cent of refined silver processed in the preceding month into excess silver spot price over USD 4 per ounce until it reaches 6,000,000 ounces.

Apart from the Facilities, the offtake agreement allows the Company to secure 50 per cent of the refined gold production, up to 2.5 million ounces from the Fruta del Norte mine.

NCM Completes Fully Underwritten Institutional Placement

The Company previously announced that it would raise $1 billion via a fully underwritten institutional placement to support the acquisition of Fruta del Norte mine and would also raise $100 million through a non-underwritten Share Purchase Plan (or SPP).

The Institutional Component of the Equity Raising

NCM targeted an institutional placement of $1 billion in exchange for the issue of 39.1 million new ordinary fully paid shares, which represented about 5.1 per cent of the Company’s existing issued capital, at an issue price of $25.60 per share, representing a 7 per cent discount to its 29 April 2020 closing price of $27.54 on ASX and an 8.9 per cent discount to its 5-day VWAP or volume-weighted average price at $28.10.

The Share Purchase Plan

The Company is yet to complete the $100 million SPP, and it would issue the new shares at a lower than the issue price under the institutional placement. The offer period will open on 7 May 2020 at would close on 27 May 2020 (5:00 PM Melbourne time).

Facts and Figures for March 2020 Quarter

NCM produced 518,770 ounces of gold during the period, down by 5.86 per cent against the previous quarter, with a ~ 4.28 per cent decline in the all-in sustaining cost (or ASIC), which stood at $827 per ounce.

The Company realised an average price of $1,569 per ounce during the period, up by ~ 7.76 per cent against the previous quarter.

Source: Company’s Report

NCM suggested that the main reason behind the production decline was the lower production from Cadia, Telfer along with divestment of Gosowong in March 2020, which more than offset the higher gold production from Lihir and Red Chris.

However, the Company further mentioned that the decline in the production across the Cadia prospect was mainly in line with expectations and reflected planned maintenance closure of both concentrators during the period and lower grade ore feed.

The production at the Telfer prospect plunged by 6 per cent during the period due to a reduction in underground ore mill feed, which was associated with the planned reduction of mining of the SLC and Western Flanks.

However, while production from both Telfer and Cadia declined in line with expectations, the Company witnessed a 14 per cent increase in the gold production across the Lihir prospect due to an improvement in mill throughput, reflecting a reduced number of shutdown days and higher mill grades.

The decline in ASIC was mainly due to the higher gold production from Lihir operations and from the decline in the value of the home currency. Apart from that, lower levels of sustaining capital expenditure and the timing of sales at Cadia and Lihir also supported the cost component.

Newcrest anticipates that the gold production in June 2020 quarter would remain higher as compared to the March 2020 quarter in the wake of reduced planned shutdown events across the portfolio.

NCM kept the FY2020 production guidance in the range of 2,100 to 2,200k ounces of gold.

The Response from the Market

ASX seems to be discounting the latest development currently going on the Company level. NCM was on a trading halt on 30 April 2020, the day at which the Company announced its quarterly figures, the latest acquisition, and intention to raise further capital.

The stock plunged on 1 May 2020 and started the session with a ~ 6.71 per cent gap down to open at $25.690; however, it rose a bit to mark a present intraday high of $26.065 (12:35 PM AEST), but is currently under pressure and is trading at $25.530 (as on 1 May 2020, 12:35 PM AEST), down by 7.29 per cent against its previous close on ASX.