Gold miners were hit on the ASX on Thursday in a day of at times chaotic trading, much of it due to the travel ban on Europe announced in a blaze of confusion by Donald Trump.
Gold prices were easier through the Asian session after Wednesday’s big fall in New York trading.
The ASX All Ordinaries Gold Index fell 8.4% to levels not seen since early 2019.
Sector leader, Newcrest Mining saw its shares down 8.7% cent at $24.31 after Wednesday’s 8.6% slump.
Besides the slide in gold prices, it was the shock downgrade to its 2019-20 gold production index that drove prices down more than 17% in two days.
The news took investors by surprise and yesterday saw a spate of downgrades from analysts.
The culprit was difficult mining conditions at its Lihir mine in Papua New Guinea. Lihir has been a troubled mine for Newcrest previously but had been operating comfortably for the past two years
On top of Lihir’s problems, Newcrest’s Telfer mine in Western Australia is still causing concerns.
As a result, Newcrest warned that it now expected to produce between 2.1 million and 2.2 million ounces of gold in the June 30 financial year, down from a forecast of between 2.38 million to 2.54 million ounces it gave on January 30 in the first half production report.
Newcrest CEO Sandeep Biswas said increased gold production at its Cadia mine in NSW and Red Chris mine in Canada’s British Columbia would not be enough to offset the shortfalls at Lihir and Telfer.
The 8% cut in production though won’t look as bad as the surge in gold prices in the past few months. In US dollar terms the price is up 7.6% so far this year and more than 15% in the past six months. But in Australian dollar terms, it is up around $A2,500 an ounce and close to all-time highs.
Newcrest prices its sales and profits in US dollars, but its costs are priced in Australian dollars mostly, along with PNG Kina and Canadian dollars which have fallen against the greenback in recent months, thereby cutting production costs in US dollar terms.
Lower oil prices will also aid Newcrest as it consumes a lot of energy at its mines in PNG, Australia, and Canada.
Mr. Biswas said output at Lihir will now come in between 775,000 and 825,000 ounces. That is sharply lower than the 930,000 – 1.030 million ounce forecast at January 30.
Gold production in the six months to December 2019 was just over 1.06 million ounces, down from the 1.2 million in the same period of 2018. The dip was blamed on lower output from Lihir and the Gosowong mine in Indonesia which has just been sold. Lihir’s lower production was blamed on lower-grade ore in the processing mix.
“Lihir has been challenged by difficult mining and geothermal conditions, leading to a sub-optimal blend of ore feed to the plant,” Mr. Biswas said.
“Operating improvements planned at Lihir for the remainder of the 2020 financial year will be insufficient to address its shortfall in production.”
