Newcrest cuts output guidance as global fears send gold price soaring
Newcrest, Australia's largest gold miner, has cut its full-year gold production forecast after confronting difficult mining conditions at its Lihir mine in Papua New Guinea. Compounded by the underperformance of its Telfer mine in Western Australia, the problems at Lihir prompted Newcrest to warn the market it now expected to produce between 2.1 billion and 2.2 billion ounces of gold this financial year, down from a forecast of between 2.38 billion to 2.54 billion ounces it gave on January 30.
The production downgrade comes at an inopportune time for the ASX-listed gold miner, with the price of the precious metal in Australian dollars close to a record high. Australian-denominated gold on Wednesday was hovering around $2500 an ounce, as investors sought a safe haven from the economic uncertainty caused by the coronavirus outbreak and the dramatic fall in the oil price.
Newcrest chief executive Sandeep Biswas said increased gold production at its Cadia mine in NSW and Red Chris mine in Canada's British Columbia would not be enough to offset the shortfalls at Lihir and Telfer.
While the divestment of Newcrest's Gosowong mine in Indonesia was a contributing factor, the miner's output downgrade was largely due to the challenging mining conditions faced at Lihir, located in an extinct but geothermally active volcanic crater on an island 900 kilometres north-east of Port Morseby. Mr Biswas said output at Lihir, usually one of Newcrest's top-producing mines, will now come in between 775,000 and 825,000 ounces.
"Lihir has been challenged by difficult mining and geothermal conditions, leading to a sub-optimal blend of ore feed to the plant," Mr Biswas said. "Operating improvements planned at Lihir for the remainder of the 2020 financial year will be insufficient to address its shortfall in production." Following the production outlook downgrade, shares in Newcrest slumped 8.6 per cent on Wednesday to $26.63Analysts on Wednesday said Newcrest's latest exploration results, including at Canada's Red Chris, highlight "significant mineralisation with solid grades".
However, the main takeaway was the 8 per cent downgrade to guidance, they said.
"It appears the downgrade is driven by lower grades at Lihir, where access to ex-pit ore has been delayed due to difficult mining and geothermal conditions that requires re-sequencing," analyst Paul Hissey of the Royal Bank of Canada said.