Newcrest Mining: Mining

The Company

Newcrest Mining (NCM) is one of the world’s largest gold mining companies and operates mines in four countries, with a global workforce of around 10,000. NCM’s strategy is to build a portfolio of predominantly long-life, low-cost gold assets that can remain profitable through various stages of the gold price cycle. The company is an unhedged gold producer and seeks to maintain a conservative balance sheet.

NCM has a concentrated asset portfolio comprising operating mines and growth opportunities in Australia, Papua New Guinea, Indonesia, Côte d’Ivoire and Fiji. Current reserves estimates include 78m oz of gold and 12m tonnes of copper, which represents over 25 years of future production at current rates.

610,186 oz of gold was produced during the first quarter of 2015, while 24,307 tonnes of copper was produced during the same period. This was characterised by an increase in gold production relating to the continued ramp-up of Cadia East in Australia and increased production at Bonikro in Côte d’Ivoire and Lihir in PNG.

Cadia East gold production increased 19% over the previous quarter, to 121,592 oz. This was also boosted by the installation and commissioning of the site’s final underground crusher during the Q1 2014. NCM has also made application to the New South Wales Department of Planning and Environment to modify the Cadia East project to increase the upper limit of the processing plant from 27m tonnes per annum (tpa) to 32m tpa. Production and processing on Lihir Island also increased, with Lihir processing 2.8m tonnes of ore during the quarter. NCM continues to target a sustainable grinding throughput rate of 12m tpa by year end.

Production at the Telfer site in Australia was low quarter-on-quarter, while the all-in sustaining cost (AISC) per ounce was 3% higher, primarily due to lower grades and reduced throughput, although this was partially offset by an increase in recovery. Additionally, Merrill Lynch has been engaged in assessing alternative ownership options for the site. Meanwhile, production at PNG’s Hidden Valley in Q1 2015 was marginally higher than in the previous quarter but was again restricted by unplanned downtime and limited ore availability. The overland conveyor, which suffered a belt tear in Q4 2014, only resumed operation in mid-January 2015, while low stockpile levels, a power outage and mill discharge screen failure also affected production. In Côte d’Ivoire , higher Bonikro gold production in Q1 2015 was attributed to higher-grade ore mined and additional feed resulting from the availability of Hiré oxide ore, which accounted for 26% of production.

The gold price realised during the Q1 2015 was A$1226 per oz, while the copper price during the same period was A$3.38 per pound. AISC for the quarter was $745 per oz, reflecting a weakening Australian dollar and access to higher ore grade at Bonikro and increased production at Cadia. NCM’s focus on capital efficiency across the company and reduced capex in Cadia East should impact NCM’s group capex. We expect capex to be below original guidance now at A$580-620m. Meanwhile, NCM continues to maintain its expenditure programmes targeting improved reliability.

NCM continued to pay down debt from free cash flow generated within the period, including the proceeds from the partial sale of Evolution Mining. NCM reduced its holding from 32.3% to 14.9% and the sale price was A$0.85 a share. NCM’s gearing ratio was stable at 33.9%. This was also impacted by the deterioration of the Australian dollar/US dollar exchange rate.

Company Strategy

NCM is focused on restocking the growth pipeline with high-quality exploration-stage projects. The search area includes Asia-Pacific, West Africa and key global gold belts. Recent activities have included entry into an agreement with Barrick Gold and Terenure to acquire the Wamum tenements in PNG. Exploration in Wamum will commence on completion of the acquisition, which is subject to conditions including certain regulatory approvals. NCM currently has seven rigs in operation, three relating to exploration (one in Fiji and two in Gosowong, Indonesia) and four in reserve definition (one in Bonikro and three in Telfer).