What the Trading Halt Means for Newcrest Mining (ASX:NCM)

What the Trading Halt Means for Newcrest Mining (ASX:NCM)

Trading in mining giant Newcrest Mining Ltd [ASX:NCM] has been put on hold this morning, as the company launches a $1 billion capital raising.

NCM said funds from the institutional placement are being put towards financing facilities for a gold mine in southeast Ecuador.

The offer is priced at $25.60 per share, which represented a 7% discount to the NCM share price at last close and an 8.9% discount to its five-day average.

If this seems a bit like Groundhog Day, that’s probably because it is.

Newcrest joins a list of about 60 Aussie-listed companies that have tapped investors for new equity in April.

Australian companies have raised a record $11 billion from equity placements in April — more than any previous month on record.

ASX Capital Raising April - ASX NCM

Source: Bloomberg

More cash to ramp up cash flows

Newcrest said the new funds would be put towards the US$460 million acquisition of financial instruments linked to Ecuador’s Fruta del Norte mine.

The hope is to accelerate the return NCM receives from its existing investment in the mine.

The company said the acquisition would give it exposure to 400,000 ounces of gold from the mine between 2020 and 2026.

However, the Fruta del Norte mine is currently suspended due to the COVID-19 pandemic, so take this figure with a grain of salt.

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Australia’s largest gold miner said it also wanted more funds to boost results from last year’s ambitious US$806.5 million acquisition of a controlling stake in Canada’s Red Chris mine.

A mine which will require substantial spending and exploration success to be a profitable investment.

Today’s equity raising may leave some investors scratching their heads.

Newcrest’s balance sheet is in good shape.

So, there was no sign Newcrest would need to raise cash outside of acquisitions.

As at 31 March 2020, NCM had cash on hand of about US$1.4 billion and access to a further US$1.4 billion in the form of undrawn committed bank facilities.

Like I mentioned above, NCM will have to join a queue of other blue chips seeking fresh cash, like some of Australia’s Big Four banks.

National Australia Bank Ltd [ASX:NAB] recently tapped the market for the largest equity offering this year with a AU$3 billion institutional placement.

Acquisitions and equity raisings on trend

Fruta del Norte produced first gold in the past six months and is expected to be in commercial production within months.

NCM previously described it as a ‘tier one’ asset.

So, it is not surprising that they are throwing cash its way.

Today’s announcement means Newcrest now has short-term and long-term exposure to cash flows from Fruta del Norte.

But the deal also adds to an acquisition frenzy which has been led from the top.

Northern Star, Saracen Mineral Holdings, and St Barbara have all used equity raisings to fund acquisitions within the past year.

With the Australian dollar denominated gold prices repeatedly setting fresh records over the past year, we could see this trend continue for some time.

What future consequences this type of trend might have will remain to be seen.

But as long as there is demand for gold, we could see plenty more stories like this.

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Lachlann Tierney,
For The Daily Reckoning Australia