Mining

 

The Company

Newcrest Mining (NCM) is an Australian-based company engaging in the exploration, development, mining and sale of gold and gold-copper concentrate. NCM emerged from the merger of Newmont Australia and BHP Gold in 1990. Newcrest has been listed on the Australian Securities Exchange since 1987 (initially as Newmont Australia). Newcrest also listed on the Port Moresby Stock Exchange following the acquisition of Lihir Gold in 2010. As of 2015 Newcrest was the world’s sixth-largest gold producer.

Newcrest has six operational mines, and the gold reserve has an estimated life of around 28 years. The primary gold and copper producer for the company in Australia is at Ridgeway (Cadia Valley operations), the second being the Telfer Mine in the Pilbara region of Western Australia. Newcrest also operates two mines in PNG (Lihir and Hidden Valley), and one each in Côte d’Ivoire (Bonikro) and Indonesia (Gosowong).

NCM’s gold production increased by 2.6% to 637,000 oz in the first quarter of 2016, owing to a full quarter of production at Cadia and marginal high gold recovery which was partially offset by lower production at Gosowong following the geotechnical event in February 2016. Newcrest reduced its group’s all-in sustaining cost (AISC) per oz by 4.5% to $723 in the first quarter of 2016. The drop in AISC was due to low cost of operation from Cadia as well as significant reduction in AISC per oz at Hidden Valley. Telfer and Gosowong’s AISC per oz increased primarily due to lower-grade ore feed and mine suspension, respectively. Lihir maintained a stable AISC of 4804 per oz and achieved a grinding throughput rate of 12.9m tonnes per annum for the quarter.

Cadia operations in Australia were placed under care and maintenance on March 3, 2016 following 14 years of operation. The first quarter of 2016 saw the primary gold and copper producer for the company in Australia increase its production by 58% due to the increase in tonnes milled and higher gold recovery and grade discovered, representing an annualised throughput rate of 25.2m tonnes. The higher throughput rate and grade attributed to the reduction in Cadia’s AISC per ounce by 36.6%.

The group has a strong track record of exploration and has discovered major deposits over the last 15 years. The company continues to explore new greenfield regions that have the potential to deliver the next generation of discoveries. NCM has also secured an interest in emerging exploration predictions and with two major prospects for significant metal endowments in Wafi Golpu (PNG) and Namosi (Fiji).

Gold production guidance for FY 2016 remains unchanged at 2.4m-2.6m oz, while AISC guidance dropped mainly as a result of lower costs at Gosowong (due to the mine suspension) and Telfer (due to lower underground mining activity and lower production stripping). The group’s sustaining capital expenditure has been lowered. The company’s board decided that it is in the best interest of the company to place Australian dollar gold price hedges for a portion of Telfer’s future gold production, which will in turn support investments in the future.

Outlook

Edge, the new business improvement programme, helped NCM deliver a statutory profit of A$546m ($402.1m) for FY 2015, compared to a loss of A$2.2bn ($1.6bn) the previous year. Underlying profit grew by A$83m ($61.1m) to A$515m ($379.3m) owing to higher revenues from the ramp-up of higher margin production at Cadia East along with beneficial impact from the weakening Australian dollar.

Meeting financial obligations, maintaining a strong balance sheet and being able to return excess cash back to shareholders were the main company objectives. The board is prioritising debt repayment and decided that there will no dividend for the 12 months ended June 30, 2015. The board will consider returning to paying a dividend as debt is reduced, taking market and operating conditions into consideration.

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