Why The Newcrest Mining’s Share Price Dropped Today

What happened to the NCM share price?

Newcrest Mining Limited [ASX:NCM] tanked by more than 4% by 2:30pm in today’s trading session. NCM is not the only mining company that has been caught in today’s ‘bloodshed’ selloff. Investors need to realise that more money supporting the recent mining rally will bring sharper periodic corrections, as we have seen today.

Why did NCM shares do this?

Why did NCM do this? This is a sharp, sector-wide correction for the mining sector. We have seen energy price pulling back in recent days. This has no doubt prompted some profit-taking. Does this mean the ‘trend’ has been reversed against commodities? No, it does not. Although we cannot be certain about where the trend is going, one day of reversal is not enough to establish a new trend.

On fundamentals, the market is seeing a strengthening in the revenue and profit positions of NCM. The company currently doesn’t pay a dividend. This is quite understandable; after all, mining companies are trying their best to rein in costs amid a difficult rebalancing. The latest sales growth rate was negative for the company on a trailing 12 months (TTM) basis. Earnings were however in positive territory (TTM). Net profit margin was also positive (TTM).

The company is quite liquid given a current ratio at more than one, and interest coverage at more than six times. Debt to equity is less than 100. That means solvency risk is low.

What now for NCM?

NCM is one of the top trend stocks in the last few weeks. There has not been a visible trend reversal yet. What we know is NCM continues to behave similarly to other mining companies in a volatile market. I recommend that you remain mindful of your sector exposure to mining. If the sector continues to do well, you will make more gains; if it doesn’t, you will see higher risk.

Ken Wangdong
Emerging Market Analyst, New Frontier Investor

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