More poor news from the mining sector.
Two leading miners – Newcrest (NCM) and OZ Minerals (OZL) (see separate story) produced June quarter production reports yesterday and there was little good news for shareholders. And mining services group, Ausenco (AAX) revealed a rather steep downgrade in revenue and earnings as the new reality of mining hit hits businesses (see separate story).
First up, Newcrest is the one most in the wars with repeated production problems and downgrades, and then the kerfuffle over the timing of the release of the statement in early June revealing up to $6 billion inwrite downs, job cuts and other changes and dropping the final dividend.
But while there were no bombs in the quarterly and annual production reports, the real test for Newcrest will come next month when the company reveals more details of its write downs and cost cuts and what will be a multi-billion dollar loss.
In its June quarter production report the company had another surprise for investors – a further fall in gold output was forecast for the September quarter.
This was after a strong lift to gold and copper output in the June quarter with gold output up 25% to 642,032 ounces and copper up 20% to 22,818 tonnes. That was much better than most market forecasts.
NCM YTD – Newcrest survives production report, now for the bad news in August
In the year to June 2013, Newcrest said it "produced 2,109,784 ounces of gold and 80,366 tonnes of copper at a cash cost of A$750 per ounce and total cost of A$1,040 per ounce”.
Seeing world gold prices are around $US1300 an ounce, the company is not very profitable at the moment, but the annual production figure was just above market forecasts of 2.06 million ounces.
"Newcrest’s 2013 financial year gold production of 2.11 million ounces was within the 2.00 to 2.15 million ounces range announced to the market on 28 March 2013. Full year copper production of 80,366 tonnes was within the original guidance of 75 to 85 thousand tonnes," the company said yesterday.
"Total site costs of A$2.43 billion were within the original aggregate guidance range of A$2.34 to A$2.47 billion, and expected total capital expenditure for the 2013 financial year remains within the original guidance range of A$1.8 to A$2.0 billion."
Newcrest forecast a fall in production in the September quarter, but said output for the full year to June 2014 will come in between 2-2.3 million ounces, or around 90,000 to 190,000 ounces more than in 2012-13.
"As announced on 7 June 2013, gold production for the 2014 financial year is expected to be 2.0 to 2.3 million ounces, with capital expenditure around A$1 billion and exploration expenditure around A$85 million. Copper production for the 2014 financial year is expected to be 75 to 85 thousand tonnes.
"The first quarter gold production for financial year 2014 is expected to be lower than the June 2013 quarter, with production expected to progressively increase over the course of the financial year. Production and costs will continue to be actively managed to target a free cash flow neutral or positive outcome for the Company for the 2014 financial year," Newcrest said.
In the year ahead, Newcrest is looking to job cuts and other changes, plus lower capital spending combined with a decline in stripping levels at some of its mines to cut costs. The extra gold and copper production expected this financial year won’t boost revenues all that much, so the company will be looking to deep cost cuts to protect its profit margins.
Additionally, work is underway to cut costs at some properties such as its half-owned Hidden Valley mine in Papua New Guinea where high costs are "unacceptable", it said. Its partner, Harmony Gold of South Africa, last week wrote down the value of Hidden Valley by more $US200 million.
Newcrest recently disclosed a hefty $6 billion writedown in the book value of its gold properties due to the slump in the gold price, including a $3.6 billion writedown against the Lihir mine, also in Papua New Guinea, which it had bought earlier for $9.8 billion.
Newcrest will produce its 2012-13 results on August 12 and is expected to provide more details of the writedowns and other cuts outlined in the June 7 statement.
Yesterday the company abandoned its previous policy of making production projections well into the future, apart from repeating the 2013-14 forecast issued on June 7.
“The long-term production profile is very much dependent on market conditions,” chief executive Greg Robinson said in a briefing It is the first time Newcrest has formally abandoned forecasts. Late last year, the company forecast that it would be producing between 3.1 million and 3.5 million ounces a year in 2016-17.
Newcrest shares fell 1.3% or 16c to $12.53. A weaker world gold price yesterday didn’t help as well.
