Last Thursday, Newcrest released its March quarterly report.
Overall we consider it’s a positive result for Newcrest – the company has increased gold production, upgraded its full year copper production outlook, reduced its capital expenditure forecast and indicated costs were likely to be at the lower end of its previous guidance range.
Newcrest continued to pay down debt from free cash flow generated in the period, including the proceeds from the partial sale of its stake in Evolution Mining. There also remains ongoing speculation that Newcrest is putting its Telfer mine up for sale. Telfer is one of Australia’s largest gold mines and is thought to be worth up to AUD500m, which we expect would be applied to further reduce debt.
If we continue to see further improvement in the performance of the Lihir mine, debt reduction and gold prices remain around the USD1,200 per ounce level, we would expect to see Moody’s remove the negative outlook on Newcrest’s Baa3. Moody’s has indicated the timing and potential execution challenges around achieving improvements at Lihir remains a key underpin of their current negative outlook. Early indications are that the Lihir is performance better but more evidence of sustained positive performance is needed.
Key points include:
- Quarterly gold production of 610,186 ounces is up 5.7% on the previous quarter, relating to the continued ramp-up of Cadia East and increased production from Bonikro and Lihir
- Quarterly copper production of 24,307 tonnes was down 4.7% on the previous quarter, however the company has favourably improved its FY15 copper production guidance range by 5,000t to 95,000-105,000t
- The Group’s ‘All-In Sustaining Cost’ (AISC) of USD745 per ounce in the quarter is a 9.8% improvement on the previous quarter, reflecting the falling Australian dollar, access to higher grade ore at Bonikro and increased production at Cadia
- The Group said its full year all-in sustaining costs overall were likely to be around the lower end of its AUD2.3bn to AUD2.5bn guidance range. Total capital expenditure is likely to fall below originally provided guidance, with the company predicting spending for the year to be in the range of AUD585m to AUD625
Below is a performance summary on a mine-by-mine basis.
The Cadia mine continues to be a world class performing mine for the company. Cadia East gold production of 121,592 ounces in the quarter was 19% higher than the previous quarter. AISC for the quarter was at a mere USD204 per ounce sold, delivering a substantial AISC margin USD1,022 per ounce sold which is up 4.7% on the quarter.
In relation to the ongoing Telfer future options review, Newcrest has appointed Merrill Lynch to assist in assessing alternative ownership options.
The Lihir mine, which has continually been a challenge for the business, was producing at a positive AISC margin during the March quarter which is good news. Gold production at the Lihir mine of 178,628 ounces was 11% higher than the previous quarter. The increase in production was the primary driver for the 12% reduction in AISC to USD1,096 per ounce. As a result, Newcrest was able to achieve a positive AISC margin of USD130 per ounce at Lihir.
Bonikro had a very strong result, its USD AISC per ounce decreased quarter on quarter by more than half to USD501 per ounce sold, primarily due to higher gold grade.
Gold production was 13% higher than the previous quarter due to 14% higher head grade which was partially offset by a 3% reduction in tonnes milled.
Performance at the Hidden Valley mine was poor. Despite increases in production, the mine was producing at an AISC loss of USD585 per ounce sold.
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