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.

Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.

This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.

Please note that past performance is not a reliable indicator of future performance.

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