Newcrest gold production up, copper down

Despite challenges at some of its operations Newcrest Mining increased gold production by 1% to 2.43 million ounces during the 12 months to June 30. This figure was within the company’s guidance range.

Newcrest produced its gold at an all-in sustaining cost of US$762 per ounce and its average profit margin per ounce was US$404. The company had production issues at its Gosowong project in Indonesia and at Telfer in Western Australia.

Copper production was 83,070 tonnes, which was lower than the previous financial year when 96,816 tonnes were produced.

These figures were reported in the company’s financial year results which saw statutory profit decrease by 12% to US$332 million. The company has switched to reporting in US dollars, which has nullified a gold price near record highs in Australian dollar terms but magnified the cost savings the company has reported.

Operating costs declined by 11% to $US1.9 billion, while net debt fell 27% over the year to $US2.1 billion. CEO Sandeep Biswas said, “Newcrest’s financial performance in the 2016 financial year was solid, with all sites contributing positive free cash flow and the group achieving a 27% reduction in net debt.

Shareholders will receive a dividend for the first time in 42 months after the Board decided it could afford to balance a payment with capital commitments and debt reduction. The US7.5c dividend will be unfranked.

The company said its financial year gold production achievement was driven by record gold production at Lihir in Papua New Guinea, which produced 900,034 ounces for the year. At Cadia in New South Wales, Panel Cave 2 continued its ramp up and Cadia East became the sole feed source for the plant with Ridgeway placed on care and maintenance in March 2016.

It said in parallel with a focus on safe production, the pursuit of profitable growth had progressed through advancing studies at Lihir, Cadia and Golpu in PNG. Newcrest continues to build its low cost early entry portfolio of exploration options – all of which are aimed at profitable growth.

At Lihir Newcrest surpassed its target of a 12 million tonnes/annum grinding throughput rate by the end of December 2015, and achieved a record grinding throughput for the 2016 financial year of 12.1 million tonnes.

This record throughput contributed to the record production of 900,034 ounces of gold for the year. Lihir generated $307 million in free cash flow for the financial year. The target remains to achieve a sustainable grinding mill annual throughput rate of 13 million tonnes by the end of December 2016.

During the year, the Lihir Pit Optimisation PFS was approved by the Board to progress to feasibility study stage. Key outcomes affirmed the potential benefits of lateral mine development of the open pit and endorsed the progression to feasibility study with respect to a near shore cut-off wall in place of a coffer dam, substantially reducing expected future capital expenditure on the seepage barrier.

Cadia continued to be a strong free cash flow generator, contributing $482 million free cash flow at an AISC of $274 per ounce and resulting AISC margin of $892 per ounce.

The ramp up of Cadia East Panel Cave 2 continued with 126 out of a planned 165 drawbells having been fired by June 30, 2016. The firing of all drawbells is expected to be completed by the end of FY17. With the ramp up of Cadia East, the Ridgeway mine was placed on care and maintenance in March 2016 after 15 years of operation.

The PFS on increasing Cadia’s annual processing throughput capacity from 26 million tonnes to 32 million, in line with permitted capacity was progressed during the year. The study has identified two significant potential enhancements, namely an increase in the grinding level and the capability to expand processing rates beyond 32 million tonnes. The identification of these two potential enhancements has compelled an extension of the study timetable by a number of months.

At Telfer, the Future Options Review was completed and resulted in Newcrest retaining Telfer and engaging a contractor to undertake all open pit mining and mobile open pit mining equipment maintenance. Notwithstanding Newcrest’s general policy of not hedging gold production, a portion of Telfer’s future gold sales were hedged during the year. This was done to help support the economics of investment in future cutbacks and mine development at the mine, given the large scale, low grade nature of Telfer.

At Gosowong, mining activity was suspended following a geotechnical event on February 8, 2016, and recommenced at the Toguraci mine on April 12 and at the Kencana mine on June 10. The impact of this geotechnical event has resulted in a revised mining sequence and a move to cut and fill as the sole mining method to be employed at Kencana.

With the change in mining method, the ore production capacity in terms of ore mined from Gosowong is expected to be approximately three quarters of the production levels achieved prior to the geotechnical event. It is expected that Gosowong will ramp up production to this level during the current.

Bonikro in Cote d’Ivoire achieved a strong production result for the 2016 financial year, increasing production by 15% and contributing $44 million free cash flow to the group.

The Hidden Valley JV partners continue to review all strategic options in relation to the future of Hidden Valley in PNG. Pre-stripping for the Stage 5 area of the Kaveroi pit, which has a lead time to first ore of approximately 18 months, remains on hold with the focus of the operation moving to processing stockpiles and a reduced level of mining in the Hamata pit. It is expected that processing of the existing low grade stockpiles can potentially continue for approximately 12 months. Hidden Valley generated $10 million free cash flow for Newcrest in the financial year.