Peter Ker | Australian Financial Review | 25 July 2019
Newcrest Mining’s most important growth project is facing indefinite delays on the back of political turbulence, with the miner redeploying staff in the expectation its US$2.8 billion ($4.01 billion) Wafi-Golpu project will be delayed.
The scaling back of work on Wafi-Golpu came as Newcrest’s gold production in the year to 30 June rose to the highest level since fiscal 2011.
Political unrest in Papua New Guinea has prompted Newcrest to scale back its work on the project, which is located in the highlands of Australia’s northern neighbour.
Development schedules for the project had always been uncertain, with Newcrest for years telling investors that construction would take 4.75 years beyond the awarding of a special mining lease.
That special mining lease has continued to be elusive, even after Newcrest dramatically updated its plans for the project in February 2018.
On Thursday, Newcrest was pessimistic about the chances of progress at Wafi-Golpu any time soon.
“Recent developments in PNG have resulted in a delay to permitting,” said Newcrest.
“These developments include a period of internal political contest culminating in the parliament’s election of a new Prime Minister as well as the delay associated with the legal proceedings between the national government and the Morobe provincial government regarding the internal distribution of PNG’s economic interests in the project.”
Newcrest said those developments had convinced it to “defer and revise” the work program it had planned for the coming year.
“The project team in Brisbane has been redeployed and reduced in order to mitigate the costs of the delay,” said Newcrest.
“It is difficult to estimate the duration of this delay.”
The rise of James Marape to become PNG’s new Prime Minister has raised concerns for some resources companies operating in the nation, with Marape vowing to “take back the economy”.
“Who says one conglomerate from outside can come and tell me I can’t change the laws for my country,” he said in May.
“I have every right to tweak and turn resource laws. We are all about maximising resources for our country.”
Newcrest already operates the Lihir gold mine in PNG, while gold miner St Barbara also operates there.
Oil Search, Santos and ExxonMobil have gas interests in the country.
Aside from royalties and taxes, PNG may become an equity investor in Wafi-Golpu, given it has an option to buy up to 30 per cent of the project at a price determined in reference to sunk costs on development of the mine.
If PNG takes up that option, the respective 50 per cent stakes held by Newcrest and its partner Harmony Gold would fall to 35 per cent.
The continuing delays in PNG will raise doubts over whether it can be Newcrest’s next major growth project, particularly with the miner close to completing the acquisition of a controlling stake in Imperial Metals Red Chris mine.
Newcrest produced 2.48 million ounces of gold in the year to 30 June, a 6 per cent improvement on last year.
It was also Newcrest’s biggest production result since it produced 2.7 million ounces of gold in 2011; the last year before the Mt Rawdon and Cracow mines were divested into what would become Evolution Mining.
Prices for gold in Australian dollar terms reached a record high of $2049 per ounce in the past month.
Gold was fetching $2040 per ounce on Thursday, having been bolstered by sliding interest rates and geopolitical tensions between the US, China and Iran.
UBS had expected Newcrest to produce 2.47 million ounces of gold in the year at an all in sustaining cost of $US740 per ounce.