Newcrest Mining has slightly reduced its full-year gold output forecast, and outlined a deal to pay up to $US525 million to partner South Africa’s Harmony Gold in projects in Papua New Guinea.
The Harmony deal was announced both separately and included in the March quarter production report that was released yesterday.
The deal looks interesting, but it did take attention away from the small downgrade in 2008 financial year output.
The company’s huge Telfer mine remains the problem with difficult mining and processing conditions and higher costs.
Newcrest said full-year gold output would be at the lower end of its previous guidance of 1.81-1.89 million ounces, adding that full year gold output at Telfer mine in Western Australia mine was expected to be about 630,000 ounces.
Newcrest said the scheduled maintenance in February at Telfer cut gold output by 15,000 ounces.
"Telfer site operations unit costs were higher due to lower gold production and costs associated with the major maintenance shut," the company said in the statement.
While full year gold production will be at the lower level of the guidance range of 1.81 – 1.89 million ounces, the company said copper production remains within the guidance range of 86.5 – 90.0kt.
"As previously advised, Telfer production has been impacted by mechanical availability of open pit mining fleet and the processing of harder and more abrasive ores.
"Telfer’s full year gold production is now expected to be 630koz (plus or minus 10,000 ounces).
"Confidence in the Telfer geology and ore reserve estimate was established during 2007.
"Focus then turned to addressing operability issues, particularly as a result of harder and more abrasive ores.
"Progress in understanding and addressing these impacts provides the confidence that Telfer will attain an annualised production rate in the range 700 – 750koz of gold during the June quarter."
In the December quarterly report NCM said:
"Full year production guidance is maintained with the trend of increasing quarterly production expected to continue for the remainder of the year. Group production guidance remains unchanged at 1.81 –1.89Moz of gold, and 86.5 – 90.0kt of copper.
"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. This is expected to result in an increase in production from Cadia Hill for the remainder of the year. Cadia Hill open pit gold production guidance for FY08 has been increased by 55,000ozs giving an overall production range of 385 – 405kozs.
"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%."
That improvement from the Cadia mines helped the company in the quarter, and will go a long way to offsetting the weak production from Telfer.
Newcrest said in the production report: "Gold production of 441,341oz was an increase of 13% on the prior corresponding quarter. Both Cadia Valley and Gosowong performed strongly with Cadia Hill open pit achieving record gold production.
"Telfer production was impacted by a major maintenance shut in February."
The move into New Guinea will be funded initially from cash flow.
Newcrest said Harmony Gold Mining’s PNG assets included the Hidden Valley mining operation and contained 15.2 million ounces of gold and 1.76 million tonnes of copper.
Newcrest said it would make an initial payment of $US180 million for a 30% stake and would then contribute to project expenditure to take a 50% interest in Hidden Valley gold and silver mine and the Wafi copper and gold deposit.
The 30% interest would be funded by internal cash flows.
Newcrest said Hidden Valley is a gold/silver project currently in the construction phase and is expected to produce over 250, 000 oz of gold and 3.6Moz of silver per annum at a cash cost in the lowest quartile over a projected 14 year mine life. Hidden Valley contains 2.9Moz of gold and 42Moz of silver in reserves (3.6Moz Au equivalent). Resources contain 5.7Moz of gold and 90Moz of silver.
"Wafi-Golpu is a highly prospective region with two advanced staged exploration projects – the Wafi gold project and the Golpu copper/gold project. Wafi-Golpu comprises two separate mineralised systems in a highly prospective region with potential to develop into a major mineralised province. Wafi-Golpu contains 9.5Moz of gold and 1.76Mt of copper in resources," Newcrest said in the report.
Showing the favourable impact of the surge in gold prices to record levels in the quarter, Newcrest said it achieved an average gold price of $1035 per ounce in the third quarter, up from $863 in the previous quarter and just $658 an ounce in the March quarter of 2007.
Group cash costs fell to $285 per ounce of gold from $305 in the December quarter. The achieved copper price was an average of $3.93 a pound, compared to $2.91 a pound in the same quarter of 2007 and $3.53 in the December quarter of last year.
Newcrest shares fell 41c to $32.20 yesterday after sheddin
