Managing Director and Chief Executive Officer’s Report

The 2003/04 year was a period of substantial progress for Newcrest, on a number of fronts.

Overview

Financially, our much improved profit figure was due to a very strong performance at the Ridgeway mine and the commencement of gold production from the high-grade deposit at Toguraci. The robust performance at these locations offset the disappointing third quarter at the Cadia Hill open pit operation. The much stronger copper price in the second half of the year made a strong impact, lowering further the cash costs per ounce of production from an already very low level in the first half of the year.

Newcrest’s hedging program also added significant value to the Company’s profit by achieving a gold price higher than the average spot price for the year. With the Australian dollar well above US$0.64 cents for most of the year minimal foreign exchange losses were incurred. At year end, we made some significant changes to the Company’s hedge book. I expand on these changes later.

I outline below the significant progress on other objectives set by the Board for the 2003/04 year:

1. Occupational Health and Safety. We launched a major new initiative called Target Zero – the long-term aim of this initiative is to eliminate injuries from the Newcrest workplace.
2. Corporate citizenship. At each of our sites, we focussed on maintaining and improving Newcrest’s reputation as a good corporate citizen.
3. Rehabilitation. The efforts at planning and undertaking rehabilitation of our operational sites has been an area of considerable focus. Newcrest’s ability to obtain permits in the future will in part be determined by our record on this front.
4. Management structure. We improved the management structure in the important areas of technical support, human resources and IT with the aim of facilitating a culture of continuous improvement.
5. Exploration. We increased Newcrest’s exploration spend with the intention of fully understanding the potential of our brownfields sites and at the same time improving our chances of further greenfields success.

Operations

The Ridgeway mine in the Cadia Valley continued to perform strongly during the year. Ridgeway production is now highly predictable and is in line with mine plans. We increased the production rate to an annualised tonnage of 5.6 million tonnes, which exceeds the feasibility study’s nominal design capacity.

Ridgeway’s cash flow continues to be strong and within its first two years the mine had returned all capital invested in both exploration and development. This outcome is outstanding for an underground mine the size of Ridgeway.

Ongoing deep exploration drilling from underground at Ridgeway was successful in increasing the reserve and resource base of the orebody beneath its current limits. We plan to commence the necessary development so this depth extension to be brought into production in due course.

The Cadia Hill open pit mine provided some operational challenges in the third quarter of the 2003/04 year. The mine considerably underperformed due to reduced availability of the two main shovels. We devoted a lot of time to improving outcomes in this vital maintenance area and by year end, shovel availability had returned to planned levels and total rock movement had returned to normal levels. Due to the underperformance of the mining fleet, we were unable to access the higher grade areas of the pit. This resulted in ore from the low grade stockpiles being treated through the concentrator and lowered the overall gold production and increased costs.

At Toguraci, which is located two kilometres from the existing Gosowong plant on the island of Halmahera in Indonesia, pre-stripping of the orebody commenced in October 2003 with the first gold pour taking place in February 2004. The results from Toguraci have been good with the orebody performing slightly in excess of expectations to date.

During the 2003/04 year, the Toguraci operation dealt with heightened security issues arising from an influx of illegal miners. These security issues caused a cessation of mining for a period of six weeks. The temporary suspension of operations was necessary to ensure the safety of our own people and that of the illegal miners. Various claims were made questioning PT Nusa Halmahera Mineral’s (PTNHM) right to mine the Toguraci deposit. PTNHM has at all times complied with Indonesian law and we have consulted extensively with both the local and the central governments on this issue. All necessary approvals were received by PTNHM for its mining activities.

Projects

Throughout the 2003/04 year, we focussed on the vital task of delivering the first stage of the Telfer project. In late March, the program was set back when Cyclone Fay (considered a 1-in-200 year rain event) deposited 360 millimetres of rain on the site in just over 24 hours. Whilst no material damage occurred on site, we experienced some significant delays, especially in relation to the installation of the gas pipeline from Port Hedland.

At the time of writing, the first stage of the project was in the final stages of construction with only pipe fitting and electrical wiring being key tasks remaining to be done before production commences.

The second stage of the project is progressing well – the shaft sink is now well advanced and work on the underground infrastructure is in line with expectations.

The Telfer project will have a major beneficial impact on Newcrest and we eagerly await the commencement of production.

At Cracow, the underground development is proceeding smoothly and we have made a good start on the work required to refurbish the CIP plant. We anticipate that the first gold will be poured before the end of the 2004 calendar year.

The Boddington project studies continued during the year with progress made in the areas of geology, metallurgy and design. All joint venture partners continue to work towards achieving a finished study in 2005.

Exploration

Our commitment to Newcrest’s exploration remains strong. We believe that our ongoing exploration success will be vital to Newcrest’s ability both to maintain production levels and to grow into the future.

Newcrest’s exploration program involves two categories of exploration – brownfields and greenfields.

We have made excellent progress in brownfields exploration – Cadia East, Ridgeway Deeps, Cracow, Kencana and underground at Telfer – in our quest to fully understand the mineral endowment of those areas. Clearly each of these sites offers the opportunity to extend the life of the operating mines that already exist, or are planned, in these areas. Exploitation of these new resources will only require incremental capital which in turn will mean a greater overall return on capital.

Our commitment to Newcrest’s greenfields exploration continued throughout the 2003/04 year. Unfortunately, flood waters at Ashburton and the area surrounding Telfer, due to Cyclone Fay, brought an early end to the drilling season in the second half of the year – very little exploration was possible from late March until year end. This delay was particularly frustrating as progress in both these key areas had been encouraging up until that time. Fortunately exploration in both Ashburton and Telfer has now recommenced.

Greenfields exploration also continued in the Yilgarn, in Eastern Australia and in North America. We plan to resume modest exploration in South America, notably in Peru, in the not too distant future.

Finance

Newcrest reported an after tax profit of $122.9 million for the 2003/04 year, which compares with $92.2 million in the previous year – an increase of 33 percent. Profit after tax but before significant items, which provides a better indication of the underlying business profitability, was $119.3 million ($66.3 million) up 80 percent.

Basic earnings per share of 37.5 cents per share for the 2003/04 year is an increase of 7.9 cents from last year’s result of 29.6 cents per share.

Our improved profit figure is due to the lower cost of production, in conjunction with strong copper prices in the second half of the year. Co-product costing is shown in the Five Year Summary. Other positives for Newcrest were the strong copper production from Cadia Valley and the commissioning of the Toguraci mine.

Newcrest’s hedge book performed well for the Company during 2003/04 – the achieved gold price was $33 higher than the average spot price for the year. Nevertheless, the highlight for Newcrest in recent times was the restructure of our hedge book, which we announced on 5 July 2004. Newcrest’s book now consists only of simple vanilla gold derivative products in line with the Company’s hedging policy.

As a result of the higher copper prices in the second half of the 2003/04 year, we decided to lock in these much improved copper prices for most of the planned copper production over the next two years. Our plans to mine the supergene copper zone at Telfer over the first two years of the open cut operation will result in enhanced copper production. Newcrest’s hedging strategy to maintain strong copper revenue through that period will provide a substantial boost to the Company’s performance during that period.

Occupational Health and Safety

Newcrest’s management has set itself the task of attaining world’s best practice for a resource company in the area of occupational health and safety. The initiative is called Target Zero and we have hired DuPont consultants to help design the various training initiatives that we need. DuPont has a long-established reputation for international leadership in this field and we are delighted to be able to draw on their expertise.

The number of lost time accidents at Newcrest per million man hours fell from 3 in 2002/03 to 1.9 in the 2003/04 year. We hope to reduce the accident statistics to less than 0.5 per million man hours in the near future with an aspiration, over time, to eliminate work accidents that cause lost time altogether. To achieve this aspiration, we require a substantial commitment from all of our people and from our contractors. This challenge will be all the greater because of the substantial number of new people who will come on board at Telfer and Cracow in the near future.

I regret to report that one of our people was killed at our Indonesian operation during the year, despite our efforts and hopes in eliminating work fatalities. Pak Patrsino was driving a Caterpillar 966 loader when it rolled over resulting in Pak Patrsino’s death. All of us at Newcrest offer our sincerest and deepest sympathy to Pak Patrsino’s family.

We have completed a comprehensive investigation reviewing the cause of the accident in the hope that we can avoid a repeat of this tragedy.

Sustainability

The concept of sustainability is an important element in Newcrest’s development of successful operations. We are committed to developing long-term beneficial relationships with our key stakeholders as the foundation of a sustainable future.

We have a number of key stakeholder groups – from our shareholders to local communities to our own employees and contractors. The degree to which we are able to satisfy the needs of this diverse group of stakeholders is a clear measure of Newcrest’s success in establishing sustainable operations.

Since Newcrest became a signatory to the Australian Mining Industry Code for Environmental Management, we have shown a steady increase in environmental performance as measured by the Annual Implementation Survey. In the 2003 calendar year, we delivered a further increase in our annual survey score to 69 percent. Our score rose from 43 percent in 2000 to 64 percent in 2002. Under the modified scoring system used to assess implementation of the Code, 80 percent indicates that the systems represented by the Code have been fully implemented and integrated. At 69 percent, Newcrest’s score indicates that we have the necessary systems and processes in place and are well advanced in integrating these elements into our overall business functions. Throughout this period each of our operations has shown steady improvement, which we are confident will continue into the future.

While the number of reported environmental incidents rose slightly compared with the previous year (22 in 2003/04 compared with 15 in 2002/03), we believe this was still a good performance given the increase in construction activity at Telfer and Cracow. A more accurate year-on-year comparison is using the number of hours worked during the year as an indicator of overall Group activity. On this basis we had a decline in environmental incidents per million hours worked from 3.46 in 2002/03 to 2.93 in 2003/04.

Objectives for 2004/05

The key challenge for the 2004/05 year will be to bring the Telfer and Cracow projects on-stream successfully. The boost to production, as a result of these projects, has been much anticipated by our shareholders, the Board and management of the Company.

In addition to the positive outlook for Newcrest’s operations, there are some Key Performance Indicators (KPIs) that we set for the 2004/05 year:

1. Actively encourage all of our people to embrace Target Zero.
2. Enhance Newcrest’s reputation as a good corporate citizen among our stakeholders both in Australia and in the countries in which we operate.
3. Continue to place a real emphasis on the continuous improvement culture within Newcrest and to encourage behaviour among our staff and contractors consistent with and reflective of the highest ethical standards.
4. Improve the financial performance of the Company.
5. Sustain the Company’s gold reserve and resource inventory through brownfields exploration, continue to support greenfields exploration and the people who undertake this exploration.

As you would expect, Newcrest’s KPIs are similar to the list we provided last year. All of our people at Newcrest realise that there is no easy way to success and these KPIs (even if the detail varies slightly over time) will reappear year after year regardless of how successful we may be in the future.

Our people

Newcrest is going through a period of substantial growth and as a result we will welcome many new faces in the next 12 months.

In any period of substantial change, the existing members of an organisation must ensure that growing pains are kept to a minimum. The 2003/04 year is an example of such dynamic change, which has been a particularly challenging year for the management of Newcrest.

We have achieved what we set out to do in 2003/04 and we looking forward to bringing both Telfer and Cracow into production and at the same time achieving our other 2004/05 objectives.

I am confident that Newcrest’s management team and all employees will continue to rise to the occasion and enhance Newcrest’s reputation and I thank all of them for their contribution to date. It is certainly an exciting time to work at Newcrest.

[Signature]

Tony Palmer
Managing Director and Chief Executive Officer

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