Is Newcrest about to sell or close down its Hidden Valley mine?
Rhiannon Hoyle | Wall Street Journal
Newcrest Mining is mulling its options for a troubled gold operation in Papua New Guinea that it owns with one of South Africa’s largest gold producers, which could include selling or closing the mine.
The Australian gold company runs the Hidden Valley operation, about 300km northwest of the nation’s capital, Port Moresby, jointly with Harmony Gold Mining, but has struggled to turn a profit from the business, which started producing gold for sale in 2010.
The mine–which, at five times higher than its flagship Cadia operation in Australia, is by far its costliest to run–has been hampered by poor ore grades and safety issues.
The mine sits in the mountains near the towns of Wau and Bulolo, at an altitude of roughly 2000 metres, where the terrain is steep, rainfall high and earthquakes not uncommon.
Macquarie in late November valued Newcrest’s Hidden Valley asset at $70 million. Since starting production, Newcrest has written down the value of Hidden Valley by hundreds of millions of dollars.
Hidden Valley has been one of a raft of strains for the gold producer, one of the world’s biggest, which has in recent years faced setbacks of almost every sort: from engineering faults at its mines and rain disrupting operations to unexpected tax bills. It was forced to write down its assets by billions of dollars as gold’s decade long bull-run ended and found itself in a regulatory tangle in 2013 when Australia’s securities watchdog investigated the company’s disclosure practices.
Newcrest’s top ranks have repeatedly bemoaned the “unacceptable” performance of the Hidden Valley complex, singling it out as an underperforming asset and vowing to turn the site around. However, signalling they may give up on that operation to focus on more-profitable mines, the company today said Hidden Valley is under review.
“The joint-venture partners are concurrently assessing all strategic options in relation to the future of the asset,” said Newcrest, which also has gold mines in places such as Australia, Indonesia and Ivory Coast. A spokeswoman said she couldn’t comment on how long the review may take.
Newcrest isn’t alone in reconsidering the future of one of its mines. As commodity prices have plunged and shareholders become pickier about their resources investments, miners around the world including BHP Billiton and gold major Barrick Gold have raced to trim down and focus on the best-performing facilities to protect profits.
At Hidden Valley, the cost of mining remains a big challenge. “Although an improvement on the prior quarter, which had significant production outages due to a fatality, the continued high cost nature of this operation” has led the joint venture to scale back some mining activities there until metal prices improve significantly, said Newcrest. A spokesman for Harmony couldn’t immediately be reached.
Newcrest said it produced more gold overall last quarter, as higher output from its Lihir mine, also in Papua New Guinea, and Telfer mine in Australia offset weaker volumes from its Cadia site, where it ran into difficulties with processing equipment.
The miner reported a 6 per cent on-quarter rise in total gold output, to 620,691 troy ounces, in the three months through December. Copper output, however, fell to 17,581 tonnes from 21,337 tons, it said.