Lihir to get Newcrest on target

An overall view of the Cadia mine in Orange, NSW.

Paul Garvey | The Australian | 25 July 2017

For much of its recent history, Newcrest Mining has been relying on its Cadia mine in NSW to make up for the problems at its Lihir mine in Papua New Guinea. Now, the roles are being reversed.

With Cadia out of action ­following an earthquake earlier this year, it was a record quarter from the oft-maligned Lihir that helped the Melbourne-based miner reach its annual production guidance.

Lihir produced 276,230 ounces of gold during the June quarter, up 20.3 per cent for the period in what was a record quarter for the operation.

The strong performance of Lihir — which had historically been the cause of several operational headaches during its early years under Newcrest ownership — helped make up for the sharp decrease in output at Cadia, which was hit by an earthquake in mid-April.

One of two panel caves at Cadia has since restarted production, with the outstanding panel scheduled to come back into operation during the ­September quarter.

The unexpected outage and the cost of remediation work at Cadia will likely weigh on Newcrest’s earnings when it posts it full-year result next month, with the costs associated with the ­incident likely to show up as an exceptional item in its accounts.

Newcrest managing director Sandeep Biswas said the record numbers out of Lihir reflected the “relentless drive for improvement” at the mine.

“Given the disruption to ­production at Cadia due to the seismic event, the overall ­performance this quarter was ­remarkable and demonstrates the resilience of Newcrest’s ­assets,” Mr Biswas said.

Newcrest’s total output for the quarter came in at 551,815 ounces of gold and 12,968 tonnes of ­copper, down from 598,602 ­ounces of gold and 22,074 tonnes of ­copper in the March quarter.

The outage at Cadia, which has historically been Newcrest’s highest-margin mine, meant the company’s all-in sustaining cost margin fell to $US360 an ounce during the June quarter, down from $US521 per ounce in the ­previous three months.

RBC Capital Markets analyst Paul Hissey said that while he ­expected the Cadia incident to affect Newcrest’s upcoming results, the company had been able to limit the damage with improved output from its other key mines.

“While events at Cadia appear largely beyond Newcrest’s control, this result shows that the company has been able to move other levers to broadly mitigate the impact,” he said.

Brokerage Goldman Sachs says the cost guidance in the full year results will be a key driver of sentiment towards Newcrest.

On the exploration front, Newcrest revealed it had applied for 40 exploration tenements in Ecuador, which is emerging as a new gold exploration hotspot. Newcrest has already entered Ecuador through its investment in SolGold, whose Cascabel copper-gold discovery is shaping up as particularly promising.

Newcrest spent another $US40 million on a further 4.5 per cent stake in SolGold during the quarter, taking its interest in the London and Canadian-listed group to 14.54 per cent.

Shares in Newcrest closed 18c, or 0.9 per cent, higher at $19.76.

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Filed under Financial returns, Papua New Guinea

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