Some would call it brave, especially given the past year or so, for Newcrest Mining (NCM) to be talking about a new multi-billion dollar gold mine in Papua New Guinea.
Over $US6 billion in write-downs and losses, running into trouble with regulators and shareholders over selective briefings of analysts to try and massage bad news, not to mention a clean out of the board and the CEO.
And while this was all going on, a nasty plunge in world gold prices, weak copper prices and gloom and doom generally from the mining sector.
Yesterday, Newcrest told the market it believes it can build one of the world’s lowest-cost gold mines at Wafi-Golpu in Papua New Guinea for $US2.5 billion less than previously thought, under a smaller, revised plan.
If that happens it would be music to the ears of shareholders large and small who want mining companies to cut costs, drop new projects, trim debt and avoid producing too much for fear of running into more oversupply problems.
Newcrest reckons it can save up to $US2.5 billion by splitting the project’s development into two stages.
But if it happens first production from the first stage is not forecast to happen until 2020 at the earliest.
NCM YTD – Newcrest revises PNG mine plan
The first stage of the Golpu gold and copper project will target the higher value portion of the ore body, and is forecast to cost $US2.3 billion.
A pre-feasibility study for stage two will be updated, and the estimated capital expenditure over the life of the mine is expected to be $US3.1 billion.
If that happens it would be a significant saving in the cost of the joint venture project with Harmony Gold Mining which was originally costed at $US4.8 billion.
“By targeting the high value core of the ore body first, we have increased the economic returns from the mine by being cash flow positive earlier in the life of the mine,” chief executive Sandeep Biswas said in yesterday’s statement.
"Progressing stage one to the feasibility study stage aligns with Newcrest’s strategy of profitable growth through low cost operations."
Both the stage one feasibility study and stage two pre-feasibility study are expected to be updated by the end of next year.
Stage one production is forecast to start in 2020, with annual output expected to peak at 320,000 ounces of gold and 150,000 tonnes of copper in 2025.
Annual production for the original project was forecast to peak at 550,000 ounces of gold and 330,000 ounces of copper.
The Golpu deposit forms part of the Wafi-Golpu project, 65 kilometres from Lae in PNG.
The PNG government has an option to take a 30% stake in the project, which would reduce Newcrest and Harmony’s shareholdings to 35% each.
With world gold prices under pressure yesterday as falling oil prices continue to batter confidence, Newcrest shares lost 0.3% to end at $10.68 yesterday.
