Just as the smaller Kagara Ltd suffered on Wednesday and again yesterday from reporting unexpectedly poor profit figures in a quarterly report, major gold miner, Newcrest Mining saw its shares pounded after revealing more cost problems at its huge Telfer in Western Australia.
At the bottom of a summary of the December quarter and first half profit and exploration reports, Newcrest (NCM) revealed that costs would be higher at Telfer because of higher wear and tear caused by more abrasive ore and difficult mining conditions
Australia's largest gold miner also cut its 2008 production target for Telfer, but maintained its group annual forecast, saying that the shortfall would be made up by its other mine in New South Wales.
The shares shed $2.10 at one stage before rising a touch to finish 90c lower at $34. Traders ignored a small rebound in the gold price overnight so far as Newcrest was concerned..
The company left its production forecast unchanged at between 1.81 and 1.89 million ounces of gold, and between 86,500 and 90,000 tonnes of copper.
"Full year production guidance is maintained, with the trend of increasing quarterly production expected to continue for the remainder of the year," Newcrest said in its December quarter production report.
In the December quarter, Newcrest produced 456,618 ounces of gold, up 2% on the September quarter, and achieved a gold price of $US870 an ounce, up 21%.
At the flagship Telfer mine, gold production fell to 153,553 ounces, from 159,634, as the mine continued to underperform.
Newcrest cut its production target for Telfer by 54,000 ounces to a range of 430,000 to 450,000 ounces as costs rose.
"At Telfer, mechanical availability of the open pit mining fleet and the processing of harder ores are impacting the expected Telfer production profile for the full year.
"Telfer's open pit gold production guidance for FY08 has been revised lower by 54,000ozs giving an overall production range of 430 – 450kozs. The underground mine production guidance remains unchanged.
"Telfer costs have come under increasing pressure. This has been driven by increased maintenance and consumables costs as a result of harder and abrasive ore. Telfer site cash costs are expected to increase over guidance by 8 – 9%."
Newcrest has already spent over $1 billion on the mine and over the past three years has reported a succession of problems with mining conditions and higher than expected costs. Heavy rain last year was also a concern, as it was for the likes of ERA in the Northern Territory, over a thousand kilometres away..
However, Newcrest lifted guidance for the Cadia Hill open pit in New South Wales by 55,000 ounces to between 385,000 and 405,000 ounces.
"A review of Cadia Hill and Cadia East open pit sequencing has resulted in an increase in contained gold and a change in the production profile for the Cadia Hill open pit," it said.
"This is expected to result in an increase in production from Cadia Hill for the remainder of the year."
Gold production at Cadia Hill rose 28% to 117,592 ounces in the December quarter from the September quarter. Copper production was also higher.
"Site operations unit costs were lower due to increased gold production," Newcrest said.
"Unit cash costs were higher largely due to lower achieved copper prices."
Unit cash costs at the nearby Ridgeway mine were also higher due to lower achieved copper prices.
Unit cash costs at the Gosowong mine in Indonesia and Cracow mine in central Queensland were higher too, due to lower gold production.
Newcrest closed out its gold hedging and gold loan contracts in October.
Quarterly gold production 456,618oz (448,103oz)
• Group cash costs A$314/oz (A$186/oz) for the quarter
• Cadia Hill gold production 28% higher
• Telfer underground ore production 15% higher
• Telfer copper recovery 73.2% (69.2%) at lower head grades and higher concentrate grades
• Ridgeway Deeps development continues ahead of schedule
• Cadia East open pit pre-feasibility study approved
• Cadia East bulk sample drive intersected the ore body ahead of schedule.
