The key to the NCM result is the strong balance sheet.
Copper and gold prices are at relative highs, and, usually, we fear that a roll-over from peak pricing will weigh heavily on returns, especially if the balance sheet is highly geared, on the assumption that boom times will continue.
In NCM’s case, the balance sheet is in great nick, and easily able to fund production expansion plans. The acquisition of Brucejack takes this to ~$1.2bn in net debt, which remains at the lower end of history.
Margins remained strong, thanks to those high prices…
And production volumes bounced back, after some capital goods replacements.
The investment thesis for NCM is predicated on large, long life mines…
…across both copper and gold…
….producing at the bottom of the cost curve.
This most recent result highlights the cost improvement ($732/oz) AISC, with strong cashflow generation.
Mostly, however, the NCM play is about hedging the risk of the copper price going to the moon. We don’t think it will, and mostly we think that a slowing China will weigh heavily on copper prices, amongst most other commodities.
However, many clever people we follow put forward fairly persuasive supply-side constraints (no new large mine discoveries, lag times in bringing about what little new supply there is, ongoing electrification demand) such that we can imagine a very adverse supply side story, like that which we see in lithium.
So with NCM at 10x forward, and no debt, with generally defensive qualities, we are happy to take a hedging position.
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