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Newcrest Reviewing Operations After Output Falls, Costs Surge

Newcrest Mining Ltd. (NCM), Australia’s largest gold producer, said it’s reviewing its business activities as it reported a 3.3 percent drop in third-quarter output amid rising costs and falling prices.

“Operating and capital costs overall continue to be high in the global gold mining industry,” the Melbourne-based company said today in a statement. “Newcrest continues to review all of its business activities, particularly those related to higher cost,” it said, noting that its 50 percent- owned Hidden Valley operation churned out gold at a cash cost that’s higher than current gold prices.

Lower production and a falling metal price mean Newcrest is expected to report a 45 percent drop in earnings in the year ending June 30, according to the mean of 15 analyst estimates compiled by Bloomberg. Gold this month slumped to its lowest in two years and was trading at $1,426.61 an ounce as of 9:13 a.m. Melbourne time.

Production in the three months ended March 31 fell to 514,421 ounces from 532,237 ounces a year earlier, Newcrest said today. That missed the median estimate of 530,500 ounces from six analysts surveyed by Bloomberg News.

Hidden Valley, which accounts for about 4 percent of output, produced 18,988 ounces in the quarter at a cash cost of A$1,790 ($1,838) an ounce and total cost of A$2,268 an ounce, it said. That takes the group’s total cost to A$1,086 an ounce.

Hidden Valley

“As stated previously, the production and cost performance at Hidden Valley is unacceptable and a structured program to improve performance and assess the future of this operation is continuing with considerable focus,” Newcrest said. “The primary improvement action is installation of a primary crusher,” with completion anticipated next month.

Newcrest rose 2.2 percent to A$17.01 in Sydney trading yesterday. The shares have dropped 39 percent in the past year, giving it a market value of A$13 billion.

The company on March 28 cut its annual production target by more than 10 percent to a range of 2 million ounces to 2.15 million ounces, mainly because of lower production at its Lihir mine in Papua New Guinea and the Gosowong mine in Indonesia. Newcrest produced 2,285,917 ounces of gold in the previous year.

Gold has dropped 15 percent in 2013 after rising sixfold in a 12-year rally through last year. Bullion touched $1,321.95 on April 16 in the spot market, the lowest since January 2011, on speculation central banks in Europe may sell holdings to raise funds and after data showed China’s economy grew less than estimated.

The metal is forecast to average $1,707 an ounce this year, according to estimates compiled on Bloomberg.

To contact the reporter on this story: Soraya Permatasari in Melbourne at soraya@bloomberg.net

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net; Andrew Hobbs at ahobbs4@bloomberg.net

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