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Newcrest

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Guidance Update

24 April 2012

Newcrest’s Board and Management recently undertook its annual strategy review which comprises a comprehensive review of industry conditions, business objectives, key strategies and operating performance.

Newcrest’s key objectives were reaffirmed: we will focus on gold, securing high quality resources and converting these resources into low cost, high margin operations.  Newcrest will continue operating sustainably and profitably, having regard to the health, safety and wellbeing of our employees, the environment and the communities in which we operate.

The review of industry and operating conditions focused on the following pressures being experienced by Newcrest:

1. The resources industry is facing continued high cost inflation in relation to energy, labour, contractors and suppliers, and a decline in labour productivity. 

2. Our operating regions have currencies that have experienced sustained strength relative to the US$ in which our products are sold. This is impacting both operations and projects, particularly labour and energy costs.

3. Continuation of the shortage and high turnover of people with the experience and skills required to deliver on plans.

4. The co-existence of major capital projects of considerable scale at two of the largest operational sites (Cadia Valley and Lihir) creating greater complexity and the risk of more variation in production.  In particular, pre-commercial production ore sourced from Cadia East has been lower than expected.

5. The effects of long term underinvestment in fixed plant maintenance at Lihir that has caused production disruptions. 

Newcrest remains confident in Lihir’s long term potential that will be realised by sustainable production growth at a low cash cost with resource and reserve increases.  Newcrest is also confident that Cadia East will realise targeted medium term production at low cash costs.

These industry and operating conditions have been present for a while but it is now apparent that the impacts have become more significant over the past 12 months and particularly in the last quarter.  The resulting short term production performance has been unacceptable to the Board and Management. In response, Newcrest has significantly intensified its focus on operating excellence, and cost and capital control, and has re-assessed short term guidance.

Guidance

Following review, gold production for the 2012 financial year will be reduced from 2.43 to 2.55 million ounces to 2.25 to 2.35 million ounces.

  • Lihir’s monthly rate of production is not yet reaching the 65,000 to 75,000 ounces per month production rate we anticipated at the time of the announcement to the market on 24 February 2012. We now expect production to continue at around 50,000 to 60,000 ounces per month for the remainder of the financial year.
     
  • Cadia Valley has continued to experience extremely high rainfall during the March 2012 quarter which again hampered production from the higher grade open pit.  The crushers for the Cadia East underground materials handling system remain work in progress and the conveyor system is largely complete. An accelerated temporary crushing capability and a substantially complete conveyor system provides a level of materials handling capability to enable the ramp up of production from Cadia East panel cave 1 albeit at lower initial rates than expected.  Ramp up of Ridgeway Deeps to 8mtpa continues.  We expect production from Cadia Valley to continue at around 40,000 ounces per month for the remainder of financial year 2012, supported by the substitution of lower grade stockpiles.
     
  • Gosowong remains on track to produce 450,000 ounces in total for financial year 2012.
     
  • Hidden Valley is expected to produce at 7,000 to 9,000 ounces per month (Newcrest share) in the final quarter of financial year 2012.
     
  • Both Bonikro and Telfer are expected to sustain their year-to-date run rates during the final quarter of financial year 2012.
     
  • Copper guidance is reduced from 75,000 to 85,000 tonnes to 70,000 to 75,000 tonnes.
     
  • Capital expenditure guidance is increased from A$2.2 billion to A$2.4 billion.
     
  • Total cash costs pre by-product credits guidance remains unchanged at A$2.1 to A$2.2 billion.
     
  • The resulting cash unit costs post by-product credits for the full financial year 2012 are estimated to be A$590 to A$620 per oz.

Newcrest is in the process of finalising its 2013 budget.  While full production, cost and capital guidance will be provided at the time of the 2012 financial results in August 2012, the following should be taken into account for the 2013 financial year:

  • Lihir – the guidance range is likely to be 700,000 to 900,000 ounces for the 2013 financial year. This production range for Lihir reflects our current work on the reliability of the plant and inherent complexity of integrating the old and new plants during the year. The medium term objective remains to lift production to over 1.2 million ounces to achieve a strong return on all capital invested.
     
  • Cadia Valley – The guidance level is likely to be 400,000 to 500,000 ounces of gold and 50,000 to 60,000 tonnes of copper. This production range for Cadia Valley reflects the lower rate of pre-commercial production ore from the Cadia East panel cave continuing into the 2013 financial year and the inherent complexity associated with major project tie-in work.  With the cessation of mining in the Cadia Hill pit early in the 2013 financial year, lower grade stockpile material will be utilised until full ramp up of Cadia East is achieved. The medium term objective remains to lift gold production to 800,000 ounces and copper to 90,000 tonnes.
     
  • Major project, sustaining and development capital expenditure on existing operations and approved projects post pre-feasibility study stage is likely to be around A$1.8 billion, focussed on completing the major projects at Lihir and Cadia, remediating plant reliability at Lihir and otherwise directed to securing production of low cost ounces from existing operations.
     
  • Our production guidance on other assets, along with the 5 Year Plan outlook, will be updated in detail during the 2012 financial year results announcement in August 2012.

The Board and Management have concluded that future 5 Year Plan guidance will not include projects that have not passed the pre-feasibility study tollgate of the Board, to ensure the production profile of the Group best reflects the capital investment that has been approved by the Board.  This also has the effect of more clearly exhibiting the cash generating capacity of the existing operations and approved projects over the 5 Year Plan period, before re-investment in projects that have a longer dated production delivery profile.

As outlined above, Newcrest remains committed to its focus on gold, low cost position and return on capital and consequently will remain particularly disciplined in relation to operating cost and capital deployment decisions. The Board and Management remain committed to excellence in both project delivery and operational reliability and improvement.

Although Newcrest is adjusting its short term guidance the Company’s asset portfolio remains in a strong position for the long term:

  • Newcrest has excellent long life, low cost mines that will continue to grow in the decade ahead, based on an industry-leading gold reserve life of 21 years and resource life of 33 years.
  • Production from existing assets is expected to grow over the next 5 years at a compounded average growth rate of 5 to 10 percent per annum.
  • The Company expects to attain a first quartile group cash cost position on completion of the MOPU and Cadia East projects.
  • Newcrest continues to generate substantial cash from operations to fund its own growth and excess capital will be returned to investors.
  • The balance sheet is strong with gearing under 15% and substantial undrawn bank liquidity.
  • The exploration tenements owned by the company are highly prospective and exhibit significant upside potential for both brownfield and greenfield operations.
  • The expertise and experience within Newcrest equips it to realise the potential of the existing asset base and to secure and develop new opportunities to deliver strong returns to our shareholders for the future.
G J Robinson
Managing Director and
Chief Executive Officer

Forward Looking Statement

These materials include forward looking statements. Often, but not always, forward looking statements can generally be identified by the use of forward looking words such as “may”, “will”, “expect”, “intend”, “plan”, “estimate”, “anticipate”, “continue”, and “guidance”, or other similar words and may include, without limitation statements regarding plans, strategies and objectives of management, anticipated production or construction commencement dates and expected costs or production outputs.

Forward looking statements inherently involve known and unknown risks, uncertainties and other factors that may cause the company’s actual results, performance and achievements to differ materially from any future results, performance or achievements. Relevant factors may include, but are not limited to, changes in commodity prices, foreign exchange fluctuations and general economic conditions, increased costs and demand for production inputs, the speculative nature of exploration and project development, including the risks of obtaining necessary licences and permits and diminishing quantities or grades of reserves, political and social risks, changes to the regulatory framework within which the company operates or may in the future operate, environmental conditions including extreme weather conditions, recruitment and retention of personnel, industrial relations issues and litigation.

Forward looking statements are based on the company and its management’s good faith assumptions relating to the financial, market, regulatory and other relevant environments that will exist and affect the company’s business and operations in the future.  The company does not give any assurance that the assumptions on which forward looking statements are based will prove to be correct, or that the company’s business or operations will not be affected in any material manner by these or other factors not foreseen or foreseeable by the company or management or beyond the company’s control.

Although the company attempts and has attempted to identify factors that would cause actual actions, events or results to differ materially from those disclosed in forward looking statements, there may be other factors that could cause actual results, performance, achievements or events not to be anticipated, estimated or intended, and many events are beyond the reasonable control of the company.  Accordingly, readers are cautioned not to place undue reliance on forward looking statements.  Forward looking statements in these materials speak only at the date of issue. Subject to any continuing obligations under applicable law or any relevant stock exchange listing rules, in providing this information the company does not undertake any obligation to publicly update or revise any of the forward looking statements or any change in events, conditions or circumstances on which any such statement is based.

For further information, please contact:

Investor Enquiries – North America/Europe

Steve Warner
T: +1 212 351 5064
E: steve.warner@newcrest.com.au

Investor Enquiries – Australia/Asia

Kim Kerr
T:  +61 3 9522 5316
E: kim.kerr@newcrest.com.au

Media Enquiries

Kerrina Watson
T: +61 3 9522 5593
E: kerrina.watson@newcrest.com.au

This information is available on our website at www.newcrest.com.au.