The broker analysis of Newcrest Mining’s problems at Lihir underlines the point that share prices do not just reflect company performance, they reflect perceptions of company performance and that good investing relies on assessing that perception accurately. Merrill says the production is likely to be at the low end of estimates at 2.43-2.57 million ounces. Yet Merrill has a buy and a target price of $40. The reason is that the long term growth story remains intact, according to the broker:
We find this a very disappointing development, mainly because it: 1) highlights that Lihir is still some time away from being a stable operation and 2) comes off the back of a number of one-off issues seen at NCM over the past 12 months. Having said this we do not feel that this changes the long term positive NCM growth story, but it does highlight the need to get the Lihir operation running better. NCM believes it has now identified the issues at Lihir that need to be fixed; the key now is getting them fixed.
JP Morgan has a neutral recommendation but a higher price target of $43, although it has been cut from $45. Deutsche has a buy but a lower price target. It is forecasting an increase in capex:
While we had been anticipating $150m/year in capex in FY12, we have now lifted our number to $200m as the company continues to smooth out the operation. Combined with the MOPU growth capex of $600m, our total Lihir capex is $800m (prev. $750m) in FY12. We forecast $350m in overall company sustaining capex and $2.21bn total capex ($2-2.2bn guidance).
The company’s listing on the TSX is not likely to be significant with a third of the stock already held in North America and there is no obvious peer discount.