A generally upbeat March quarter production and exploration report from Newcrest Mining (NCM) yesterday, but it failed to have much impact on the share price which was hit by the sharp fall in world gold prices overnight Wednesday.
They fell $US17 an ounce and Newcrest shares dipped 0.8% at the opening, then moved lower to close the day down 3.4% on $14.10.
The reaction to the gold price fall was not unexpected, but the news in the quarterly report should give investors a bit more confidence the company is back on track.
Newcrest CEO Sandeep Biswas said in the report that a new operating strategy at the gold miner’s troubled Lihir project in Papua New Guinea has started producing a rise in output and lower costs.
The improvement was a tiny part of why the company lifted full-year guidance.
The main reason was expectations for higher copper production after a strong quarter at its Cadia mine in NSW. That was despite a 4.7% drop in copper output to 24,307 tonnes.
Forecast copper output has been raised 5,000 tonnes to 95,000 to 105,000 tonnes.
NCM 2Y – Newcrest upgrades copper expectations
As well, Newcrest said its group wide all-in sustaining costs should fall at the lower end of guidance as a result. The current guidance range is between $2.3 billion and $2.5 billion.
Gold production for the March quarter increased to 610,186 ounces of gold at an average price of $A1556 an ounce, up from $A1402 in the December quarter. Output was also 5.7% above the December quarter figure.
The miner said increased production was due to the continued ramp-up of Cadia East and increased production from the Bonikro and Lihir mines.
At Lihir, a planned mill shutdown was completed during the period but production still rose compared to the previous period, up 11% to 178,628 ounces of gold during the quarter. All-in sustaining costs were 12% lower as a result, at $US1096 an ounce.
The increase in average realised price for gold was helped by the falling Australian dollar, which averaged US78.8c during the March quarter.
Total capital spending is likely to fall below originally provided guidance, with the company predicting spending for the year to be in the range of $585 million to $625 million.
Mr Biswas said the reduction reflected a focus on capital efficiency, a lower cost environment in Australia at its Cadia East project, along with capital expenditure already coming in below expectations.
“Newcrest continued to pay down debt from free cash flow generated in the period, including the proceeds from the partial sale of our stake in Evolution,” Mr Biswas said.
The miner reduced its holding in Evolution, an Australian mid-tier gold producer, from 32.3% to 14.9% in February for about $106 million.
Newcrest agreed to keep the rest of its holding until Evolution releases its full year results in August.
Newcrest recently put its Telfer gold and copper mine in Western Australia up for sale, and sent documents out to potential buyers earlier this month.
Telfer is one of Australia’s largest gold mines and is thought to be worth up to $500 million. The company was reported to be one of the miners interested in buying an Australian mine from Canadian group, Barrick. The mine is Cowal, near west Wyalong in central southwestern NSW and near the Cadia mine of Newcrest.
The Wall Street Journal reported earlier this week:
"Australia’s Newcrest Mining Ltd. and U.S.-based Hecla Mining Co. are among the bidders for Barrick Gold Corp.’s Australian Cowal mine, according to a source familiar with the matter, which is on the block as the Canadian gold giant continues to shrink its global footprint.
“Among other companies to have made it through to a second round of bidding for Cowal are Evolution Mining Ltd. and Gold Fields Ltd., according to two people familiar with the matter."
“Toronto-based Barrick in February started a process to sell the mine, as well as a joint venture in Papua New Guinea (its 95% stake in the Pogera mine) as it looks to shave its debt load by $3 billion this year. The company has sold six mines for a total of $1.3 billion since 2012, five of which are in Australia. Last month, TD Securities Inc. estimated the two assets could be worth between $800 million and $1.1 billion.
"Cowal alone could be worth as much as $700 million, one of the people said. The open-pit mine produced 268,000 ounces of gold last year."
