Newcrest opens sophisticated gold mine in NSW but Lihir worries persist  

Image credit: Flickr User: Trawler68

Australia’s Newcrest Mining has opened its new Cadia East mine in Central NSW, the largest underground gold mine in the country which it hopes will underpin Newcrest’s future for the next couple of decades.

Image credit: Flickr User: Trawler68
Image credit: Flickr User: Trawler68

The Cadia East event was attended by NSW Premier Mike Baird who thanked the company for the thousands of jobs and hundreds of million dollars being poured into the local community as he opened the new mine in NSW.

However, the company has had its share of problems in recent times, having went through a terrible 2013 filled with controversies and sliding profits.

According to the article on The Herald Sun, Newcrest’s biggest asset and a worry at the same time is Lihir Island in Papua New Guinea, which cost nearly $10 billion to acquire in 2010 and represents 55% of the company’s book value, 40% of its reserve base and 35% of its production profile going forward.

The problem is that it barely generates any money and is costing about US$1250 to produce an ounce of gold there, more than double Cadia’s costs.

“They should be commended for the scale and quality of the job they have done at Cadia East. The Lihir transaction and subsequent execution of a proposed plan has been very, very poor and unfortunately more than offset the good work done at Cadia,” UBS analyst Jo Battershill told AAP.

“It makes it very hard to have a positive investment case on a company where the biggest asset of the company is just washing its face (breaking even) and you are just going to keep it running on stockpiles. If the gold price doesn’t rise is the company willing to commit $1.3 billion to give it a chance of generating cash,” he said.

Mr Robinson, Newcrest’s outgoing Chief Executive, argued at the mine opening that Lihir was going through a similar process Cadia had already been through, optimising production and reducing costs.

“It is not where we want it yet but I am very optimistic looking to the future for Lihir,” he said.

Newcrest’s share price is up by 32% this year, but its market cap of $7.9 billion is a long way from the $30 billion it was at in 2011.