golden eyes: newcrest looks at balancing its c

Golden eyes: Newcrest looks at balancing its copper with gold

http://www.businessday.com.au/business/golden-eyes-newcrest-looks-at-balancing-its-copper-with-gold-20090122-7nvk.html

Jamie Freed
January 23, 2009
NEWCREST MINING says it is considering acquiring pure gold deposits to help offset the growing amount of copper production in its portfolio, amid speculation it is examining a bid for OZ Minerals's Martabe gold project in Indonesia.

"We realise that strategically - not in the upcoming five years, but subsequent to that - we do have some pressure points in the by-products we are seeing," said Newcrest's chief executive, Ian Smith. "That is driving what we are looking at in [acquisitions], which is a pure gold play to balance that going forward."

Goldminers tend to trade at a premium price/earnings ratio to base metals miners, so they often aim to maintain an appropriate mix of production.

Asked how Newcrest would pay for a sizeable acquisition without raising its gearing above its targeted range of 15 to 20 per cent, Mr Smith said: "I think we would seriously be considering equity."

Mr Smith wasspeaking to analysts after Newcrest yesterday disappointed the market with its December quarter production and cost figures.

Newcrest produced 382,584 ounces of gold in the December quarter, compared with 485,978 ounces in the September quarter, due to lower grades from the Gosowong mine in Indonesia and the Cadia Hill mine in NSW.

Cash costs rose to $554 from $365 an ounce, due in part to the lower price for copper by-product credits, but its margin rose 6 per cent, to $644 an ounce, because of the higher Australian dollar gold price, which averaged $1198 an ounce during the quarter.

Newcrest yesterday lowered its annual gold production guidance to a range between 1.63 million and 1.7 million ounces from an earlier target of 1.8 million ounces but left its copper guidance untouched.

The primary driver of the gold production downgrade was its underperforming Telfer mine in the Pilbara; its plant shut for maintenance during 15.4 per cent of the December quarter. Telfer's annual production guidance has been cut from between 685,000 ounces and 740,000 ounces to between 630,000 ounces and 655,000 ounces.

Mr Smith said Newcrest would perform a major maintenance shutdown at Telfer every 13 weeks to enable it to produce between 650,000 ounces and 700,000 ounces a year in the future.

He added that Telfer hoped to lower its cash costs, which averaged $792 an ounce during the December quarter, by developing the nearby O'Callaghan tungsten deposit to increase by-product credits in the future.

A RBC Capital Markets analyst, Geoff Breen, said Newcrest's quarterly report was disappointing but added that the difficulties appeared short-term, and the company remained an attractive investment.

Newcrest shares closed $1.14 lower, or 3.5 per cent lower, at $31.90 yesterday.