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Newcrest Mining Ltd: Expansion Plans Over The Next decade

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

Newcrest Mining Ltd (ASX: NCM) is the largest gold producer listed on the ASX and one of the world’s largest gold mining companies. Newcrest has five current mining operations, namely the Cadia Project (NSW, Australia), the Telfer Project (WA, Australia), the Lihir Project (Aniolam Island, PNG), the Gosowong Project (Halmahera Island, Indonesia), and the Red Chris Project (British Columbia, Canada). Newcrest’s market capitalisation is A$19.5 billion.

 

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What are Newcrest’s expansion plans for 2030?

Newcrest has announced plans to progress four major long term projects which will underpin Newcrest’s production and cost profile over the next decade. In aggregate, these four projects are expected to result in maintaining gold production of approximately 2 million ounces per annum (pa) until at least FY30, copper production is expected to be greater than 175,000 tonnes pa in FY30 (which is an increase of 37% on FY21) and importantly Newcrest’s All-in Sustaining Cost (AISC) per ounce of gold is anticipated to decline by more than 50%, reaching less than US$500 per ounce in FY30.

The total capital cost of the four projects is around US$3.0 billion. Newcrest intends to fund all four projects through operating cash flow and existing liquidity.

The four projects are the following. First is the Red Chris Project. This project has the potential to be a long-life mine (31 years plus) and low-cost mine capable of producing both copper and gold at very attractive cash margins with a post-tax internal rate of return of 17% pa. The project may commence production in 2027. Newcrest considers that the Red Chris Project has upside potential given part of known resources are not part of the current project.

The second is the Havieron Project. This project is located 45km east of Newcrest’s existing Telfer operation and is a high grade, low capital intensity project producing gold and copper with a post-tax internal rate of return of 16% pa. The project is expected to commence production in the second half of 2024. Newcrest considers that the Havieron Project also has upside potential given the possibility of further exploration success.

Third, Newcrest is investing in the Lihr Project to produce around 1 million ounces of gold pa from 2024. Fourth, Newcrest is investing in the Cadia Project which has the effect of sustaining gold and copper production to the early 2050s. Both projects have attractive post-tax internal rates of returns.

 

What is the market reaction?

The market reaction to Newcrest’s announcement today is neutral. Newcrest is currently trading at around A$24.00 (2 October 2021). Newcrest forward P/E is in the mid-teens, with an annual dividend yield of around 2.5%.


Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purposes only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceedings. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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