Wednesday, August 15, 2012

Namosi and Wafi-Golpu mines facing uncertain future

Miner Newcrest Cautious on New Projects as Costs Rise

By Rhiannon Hoyle | The Wall Street Journal
The world’s fourth-largest gold miner Newcrest Mining Ltd. suggested Monday that potential developments at Namosi in Fiji, O’Callaghans in Western Australia and Wafi-Golpu in Papua New Guinea may be delayed following a sustained rise in the cost of setting up new mining operations.
Sharply rising capital costs have put pressure on the gold sector in recent years, with overruns on new projects a recurring theme. Australia’s largest investment bank Macquarie said that recently Australian gold miners have had to increase their initial capital expenditure estimates by 20% after continued increases in labor and energy costs.
Mining companies more generally have been tightening their focus on cost control, and several of the largest diversified miners, including BHP Billiton Ltd. BHP +0.57% and Vale, have recently cautioned that they were reviewing or cutting capital expenditure as margins from their operations have fallen.
Newcrest, which owns Australia’s Cadia Valley and Telfer mines, said rising costs would make the company “a little bit more conservative” when it comes to deciding when its projects may move ahead, Chief Executive Officer Greg Robinson told analysts on a conference call.
“In the current environment, we will certainly spend within our means,” he said. “Newcrest will be very careful in committing capital to all new projects to make sure we don’t unwittingly absorb the peak cost cycle.”
“The time will come to do [these projects], but we will look at that timing very carefully,” Mr. Robinson said, adding that Newcrest’s focus is currently on the completion of its Cadia East project, in the Australian state of New South Wales, and the plant expansion at its Lihir deposit, in the New Ireland province of Papua New Guinea.
ATI Asset Management portfolio manager Ben Lyons, a shareholder in Newcrest, said cautious comments on future capital expenditure were “commonsense” given continued jitters among investors over the global outlook.
“The market is not in the mood to entertain lofty ambitions and highly-geared balance sheets,” he said.
Newcrest, which is in the process of renewing its bilateral debt facilities with a number of banks, is already considering expanding those debt facilities this quarter, said Chief Financial Officer Gerard Bond, without elaborating further.
Still, Newcrest plans to cut costs and improve operational performance in the year ahead and the company could improve productivity “significantly” through a range of measures, including training and technological innovation, Mr. Robinson said,
“Management is focused on a large program of operational improvement and cost reduction across the company, with particular attention continuing to being directed to Lihir reliability,” Newcrest said in its full-year earnings report.
The Melbourne-based miner aims to produce between 2.3 million and 2.5 million troy ounces of gold this financial year, up from 2.29 million ounces in the 12 months to June 30. It described production volumes for last year as “disappointing.”
Newcrest reported a 23% rise in net profit for the year to June 30, to 1.12 billion Australian dollars (US$1.18 billion) from $908 million Australian dollars in the previous year, thanks to a jump in the precious metal’s price, which rose to a record of US$1,920 an ounce last September.
Macquarie analyst Mitch Ryan described Newcrest’s full-year results as “another step in the right direction…We believe it will be another marker to arrest concerns and provide positive momentum for the stock,” Mr. Ryan said.
On Monday, Newcrest shares closed up 4.4% at $25.40 Australian dollars, while the benchmark S&P/ASX 200 index rose 0.1%. The shares are down 18% year-to-date but have rebounded 21% over the past three weeks.
Newcrest, with a market capitalization of $18.6 billion Australian dollars, is the world’s fourth largest gold miner behind Barrick Gold Corp., Goldcorp Inc. and Newmont Mining Corp.

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