Peter Ker | Sydney Morning Herald
Newcrest Mining has made a disappointing start to the 2016 financial year, with two workplace fatalities, mechanical failures at its two most important mines and below-par production rates.
The deaths of workers at the Cadia Ridgeway mine in NSW and the Hidden Valley project in Papua New Guinea have continued a bad period for safety in Australian mines.
The fatalities prompted Newcrest to shut the two operations for 11 and 33 days respectively, meaning the company fell behind on its annual production target.
Newcrest plans to produce between 2.4 million and 2.6 million ounces of gold in the 2016 financial year, and will need to improve on the 583,745 ounces it produced in the September quarter if it is to achieve that target.
Despite being behind the pace, Newcrest maintained its full-year production guidance target for now.
Lower production saw all-in sustaining costs rise to $1088 an ounce during the quarter, well above the $941 an ounce the company achieved last financial year.
Investors reacted savagely to the lacklustre quarterly on Tuesday, sending Newcrest shares down by 5 per cent.
Fatalities aside, Deutsche analyst Brett McKay said the biggest focus for shareholders was news of a failure in one of the two semi-autogenous grinding (SAG) mills at Newcrest’s flagship Cadia mine on Saturday.
The SAG mills use steel balls to grind ores into smaller particles and are a crucial part of the processing phase.
Newcrest said the outage appears to be linked to the mill’s motor, and the issue is yet to be fixed.
Mr McKay said uncertainty over how long the mill would be out of action was troubling shareholders.
“The fact they have not put a time on that outage is concerning,” he said.
The company’s second most important asset, the Lihir mine in PNG, also suffered failures in the conveying and milling circuits.
Those failures are familiar to long suffering Newcrest shareholders, and come despite chief executive Sandeep Biswas staking his reputation on his ability to fix Lihir.
But Mr Biswas’ focus was on the tragic fatalities.
“We are deeply saddened that two of our colleagues were fatally injured during the quarter … I have instigated a full and detailed review of all aspects of safety management at all our sites with a particular focus on high-risk tasks,” he said.
Newcrest shareholders will be keen for an update on the Cadia SAG mill at the company’s annual meeting next week.
The miner will be hoping to avoid a second “strike” against its remuneration structure at the meeting, after more than 44 per cent of shareholders rejected the remuneration report at last year’s meeting.
A motion to spill the Newcrest board could follow if more than 25 per cent of shareholders vote against the remuneration report next week.
But influential proxy advisers ISS Governance and CGI Glass Lewis have both urged shareholders to avoid a board spill and approve the remuneration report, with CGI saying a spill would not be in the best interests of shareholders.