A million ounces of gold a year sounds great for Newcrest shareholders – but what about the poor people of New Ireland, left behind as the quasi-colonial mining companies ship their gold?
Peter Ker | Australian Financial Review
The man leading the turn-around of Australia’s biggest gold miner, Sandeep Biswas, has not given up hope that the Lihir gold mine may yet fulfil its potential to produce a million ounces of gold in a year.
The Newcrest chief executive has in recent years improved output from the PNG mine, which Newcrest acquired for $10.5 billion of scrip in 2010.
Located in the caldera of an extinct volcano, Lihir boasts one of the world’s largest gold deposits and was supposed to be producing more than a million ounces per year by 2012.
But Lihir has never lived up to those expectations, with annual production never getting close and reliability issues prompting $5.6 billion of asset impairments over the past five years.
But improvements have been seen in the 30 months since Mr Biswas took the reins at Newcrest; mill throughput has risen at Lihir by close to 30 per cent, plant availability has risen from just over 70 per cent to more than 80 per cent while all-in sustaining costs of production have fallen from $1201 per ounce in the December half of 2013 to $830 per ounce in fiscal 2016.
Lihir produced a record 900,034 ounces of gold in fiscal 2016, and official guidance for fiscal 2017 has been set at between 880,000 ounces and 980,000 ounces.
Mr Biswas rarely speaks about gold production targets, preferring instead to guide investors towards more controllable goals such as the volumes of ore put through the processing circuit at Lihir.
But he told The Australian Financial Review that producing 1 million ounces of gold from Lihir in a year could yet be achieved.
“If you took the plant up to 15 million tonnes to 17 million tonnes grinding rate, as long as your [gold] grade was in the high 2 per cent [range] then yes, it’s possible to get over a million ounces,” he said in a recent interview.
For comparison, Newcrest was due to be grinding at about 13 million tonnes per year by the end of 2016, 14 million tonnes by December 2017 and 15 million tonnes per year within five years.
But while 1 million ounces per year would be a major milestone for Lihir, it does not appear to be a driving ambition for Mr Biswas.
The Indian-born executive stressed he was more interested in value rather than volume, and under his stewardship Newcrest is taking a lower-cost development approach to Lihir that has seen its gold production volumes rise more slowly than originally anticipated.
Plans to be producing 1 million ounces at Lihir by 2012 implied an early development of a high-grade gold deposit called Kapit, but Mr Biswas has delayed the development of Kapit and studied ways to do it more economically.
“With the work we have done on developing the Kapit ore body, we have saved $1 billion on capex minimum which they would have had to spend under that plan,” he said.
“We have pushed that back, by the time we get to Kapit it will be 2025.
“Yes it [Kapit] has better [gold] grades, but you don’t want to spend a billion and half dollars going to get it, we would rather spend $200 or $300 million, which is the current plan.”
“When you look at how much gold you produce you also have to look at how much capex and what your operating costs are. I think we’ve got a much more sustainable model.”
Newcrest is expected to publish its December-quarter production results on January 30, before revealing half-year financial results on February 13.
Mr Biswas is scheduled to give an address to the Melbourne Mining Club on February 9.