Newcrest Profit Climbs 50% to Record on Gold Prices

Newcrest Mining Ltd., Australia’s largest gold mining company, said first-half profit rose 50 percent to a record, driven by gains in prices for the metal.

Net income was A$659 million ($711 million), or 86 cents a share, in the six months ended Dec. 31, compared with A$438 million, or 65 cents, a year earlier, the Melbourne-based company said today in a statement. It will pay a first-half dividend of 12 cents versus the 14 cent average estimate of three analysts compiled by Bloomberg.

Gold futures rose to a record in September as governments increased stimulus measures to shore up economies, boosting demand for the metal as a hedge against inflation. Underlying profit rose 17 percent to A$611 million, Newcrest said. That compares with the A$565 million estimate from Credit Suisse AG and A$563 million from JPMorgan Chase & Co.

“Underlying profit was better than expected,” said Geoff Muers, a Sydney-based analyst at Investec Bank Australia Ltd., who has a “buy” rating on the stock. Newcrest may report underlying profit of about A$600 million for this half as gold prices are expected to fall, he said.

Newcrest shares rose 1.7 percent to close at A$34.01 in Sydney trading, their biggest gain in two weeks. The stock has 17 “buy” recommendations, three “hold” and one “sell” with a 12-month consensus price target of A$42.98, according to data compiled by Bloomberg.

Labor Expenses

“The increase in underlying profit from the corresponding prior period is mostly due to higher realized gold prices on a sustained level of gold sales,” the company said.

Newcrest is prepared to consider an additional payout this year should prices remain “very” strong, Chief Executive Officer Greg Robinson said on an earnings call today. Prices of the metal may trade between $1,500 and $2,500 an ounce over the next two to three years on sustained demand, he said.

The cost of sales increased by 22 percent, Newcrest said in the statement, citing higher mining, fuel and labor expenses. The A$1.9 billion expansion of the Cadia East mine in Australia and the $1.3 billion plant upgrade at Lihir in Papua New Guinea are on schedule, the company said.

“While pressures on labor, maintenance, and energy costs are a problem, inflation pressures are going to moderate and a lot of production growth will be coming through in the second half,” which will be positive for first-half earnings in fiscal 2013, Investec’s Muers said.

The A$1 billion Namosi project in Fiji, due to complete its pre-feasibility stage in September, faces potential delay as talks continue between the government and land owners, Robinson said.

The community and government need to understand the “environmental set-up that we’re going to put in place,” he said. “If that means the project gets delayed a little bit, then so be it.”

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