Newcrest Mining will not be able to meet its debt hurdles within three years, under the gold miner's current business plan, analysts have predicted.
Newcrest has been under pressure to raise fresh equity in recent times, given its gearing ratio has risen beyond 30 per cent and its free cash flow generation remains limited by low gold prices.
New managing director Sandeep Biswas has refused to raise equity in the immediate future, but Deutsche analyst Brett McKay reiterated on Tuesday that the gold miner would find debt payments hard to manage under the current strategy.
After participating in Newcrest's recent investor day and site visits, Mr McKay said there was scope for the gold miner to improve free cash flow in each of the next two years, but not in a "material" way.
Newcrest indicated recently it is likely to face debt repayments of at least $US630 million in financial year 2018, and Mr McKay estimated the actual figure could be closer to $1 billion, and could not be repaid under the expected conditions.
"We continue to believe NCM will struggle to generate meaningful cash flow over the next few years, particularly in a progressively lower gold price environment as we are forecasting. With this in mind, debt repayments under the existing schedule are not possible and will therefore need to be pushed out again," he wrote.
"Not only does NCM still fall well short of debt repayments from FY18, they need to invest in key assets in order to realise the expected mine life."
Two Newcrest assets in Papua New Guinea, Lihir and Wafi-Golpu, are expected to require significant amounts of capital to improve as expected in coming years.
"With this balance sheet issue remaining, an unclear outlook at Lihir and the future of smaller assets relying on more investment, we continue to believe [Newcrest] is in a tough position," Mr McKay wrote.
The forecasts are influenced by Deutsche's gold price assumptions, which predict the lustrous metal will average below $US1100 per ounce in financial years 2016, 2017 and 2018, while the Australian dollar is also predicted by the investment bank to gradually decline over the same period.
Gold was fetching $US1247 per ounce on Tuesday afternoon, and Newcrest expects to be free cash flow positive in the current financial year if there is an average gold price of $US1250 per ounce, and the company's production targets are achieved.
Gold has average $US1271 per ounce in the first 16 weeks of the financial year.
Meanwhile, Mr Biswas is hoping to further cut operating costs and improve production volumes with his improvement strategy, which is called "EDGE".
All of the gold miner's mines were profitable in the September quarter, according to production and cost data published on Tuesday.
The Cadia precinct in particular is hitting its straps, with recent expansions allowing the NSW operation to reach a new low in terms of operating costs.
Cadia operated at an "all-in sustaining cost" of $US192 per ounce during the three months to September 30, well below the $US304 per ounce and $US342 per ounce seen in the March and June quarters.
While the fall in the Australian dollar helped the equation, it is the first time in the past five quarters that a Newcrest mine produced at a cost below $US200 per ounce, and only the second time over the same period that a Newcrest mine produced below $US300 per ounce.
The September result ensured a fat margin for the Cadia operation during the quarter, given Newcrest's average received gold price for the period was $1393 per ounce.
A new "panel cave" has recently been completed at Cadia, which is near Orange in NSW, and commercial production began from the new operation on October 1.
A big part of Cadia's low-cost results is the amount of copper that is produced alongside the gold.
Mr Biswas welcomed the performance at Cadia.
"It is pleasing to see Cadia East Panel Cave 2 achieving commercial production so early in the financial year, which positions Cadia East well to continue to increase its contribution to the company," he said.
Newcrest produced 561,731 ounces of gold at an overall all-in cost of $864 per ounce during the September quarter.
The production levels were lower than the previous quarter because of previously advised shutdowns at the Lihir mine in particular.
