Newcrest Mining is an integrated mining company, exploring, producing, and selling gold and gold/copper concentrate. The company’s operations include seven mines, five of which are located in Australia, and one each in Papua New Guinea and Indonesia. Another mine is being developed in Fiji as the company seeks to expand production by as much as 17% in 2010 and by 40% over the next five years.

In the first half of 2009, Australia overtook the U.S., assisted by declining U.S. production, to become the world’s second largest gold producing nation, behind China. Within that framework, Newcrest Mining is Australia’s largest gold producing company, and is involved with Australia’s two largest gold producing mines, the Telfer (wholly owned and operated) and The Super Pit, a joint venture with Barrick Gold Corp., the world’s largest gold producing company.

The company’s stock price received a nudge from the discovery of tungsten, zinc, and lead at the O’Callaghans dig near the Telfer mine in Western Australia. The deposit is huge, with the potential when operational to be the world’s largest producer of tungsten, with double the production of its closest competitor and supplying 7.0% of global requirements. Newcrest Mining has intimated a willingness to acquire a partner to develop that potential, with reportedly large amounts of interest being expressed.

Output at the Cadia Valley mine in New South Wales fell 22% in the quarter ending 30 September, the last for which data are available, causing a 5.0% drop in the company’s production for that quarter year-over-year. Production costs were 2.0% lower in that period, with the rising price of gold contributing to increased net income of 84.74%.

Newcrest Mining has a strong cash position and little debt. The stock is overall rated at outperform, with EPS of 0.53 and a P/E ratio of 69.66.

In mid-October 2008, the stock NCM bottomed out at 16.55 and initiated a new long-term bullish trend. This trend remains in effect, even as it climbs toward a strong resistance level at 40.00, set in 2008 and respected repeatedly during 2009, as shown on the weekly chart, below:

In greater detail on the daily chart, NCM range-traded between 27.50 and 35.00 for most of 2009. Only in October did it begin to climb above that range, initiating a mid-term uptrend off the 28 August 2008 low of 28.47 and reaching the first peak on 17 September at a high of 35.69. It then retracted 50% before renewing its climb, touching and respecting the trendline 2 November. Only in early December did it retest the 40.00 level, proving that resistance remains in effect, and leaving an unfilled gap between 37.00 and 38.00, below:

Traders should watch for another test of resistance, filling in the gap en route, before another retraction back to the trendline. The price action should then resume the uptrend, hopefully with sufficient momentum to break through at 40.00.

technical analysis by Craig Liles

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