Newcrest thinking slim
Newcrest was one of several ASX-listed gold miners to reveal March quarter results on Tuesday, and the publication of production costs revealed that numerous mines across Australasia are unprofitable at current gold prices.
While Newcrest's biggest mines are low cost, its portfolio includes stakes in high-cost mines such as Papua New Guinea's Hidden Valley, which the company owns in partnership with Harmony Gold.
Tuesday's report revealed that "all in" costs for the mine were $2268 an ounce during the March quarter; drastically higher than the $US1410 $1326) that gold was fetching on Tuesday evening.
Newcrest said a program to improve performance and "assess the future" of the mine was under way with "considerable focus".
The Telfer mine in Western Australia is also becoming expensive to run, with production costs of $1573 an ounce in the March quarter.
In what sounded like a portent to divesting certain assets, Newcrest said it would take action to "simplify and reduce activity" across its business.
"Newcrest continues to review all of its business activities, particularly those related to higher cost current or future production," the company said.
"The company is focused on creating a strong return from our major investments in expanded lower cost production sources and generating free cashflow."
Newcrest revealed it had already cut 150 jobs from its Melbourne and Brisbane offices as part of a cost-cutting regime.
While Newcrest shares lost more than 3 per cent of their value, mid-tier gold producer St Barbara was the gold sector's worst performer, losing almost 14 per cent after downgrading its production guidance. The miner conceded it would produce about 3 per cent less gold than forecast in the year to June 30.
St Barbara said it had reassessed all its mines after the gold price slump over the past fortnight, and expects all can survive assuming a gold price of at least $US1400 an ounce.
Several of the company's other mines are also producing on very thin margins at current gold prices.
Evolution Mining shares also fell more than 6 per cent after the company revealed an "all-in" production cost of $1353 an ounce during the March quarter.
Evolution disappointed the market in terms of gold produced, but retained its full-year guidance.
Frequently Asked Questions about this Article…
Newcrest said it is reviewing the future of some of its mines after a plunge in the gold price showed several Australasian operations are unprofitable at current levels. The company is running a program to improve performance, assessing higher‑cost assets, and focusing on simplifying its business and generating free cashflow from lower‑cost production.
Newcrest reported Hidden Valley's 'all‑in' costs at $2,268 an ounce in the March quarter, well above the gold price at the time (about US$1,410). The company said it has a program underway to improve performance and 'assess the future' of the mine, which it owns in partnership with Harmony Gold.
The Telfer mine in Western Australia had production costs of $1,573 an ounce in the March quarter, making it increasingly expensive to run. Newcrest is reviewing higher‑cost operations across its portfolio to decide where to focus activity.
As part of its cost‑cutting program, Newcrest has already cut 150 jobs from its Melbourne and Brisbane offices. The company also said it will 'simplify and reduce activity' where appropriate to protect returns and free cashflow.
Newcrest shares fell more than 3% after the March quarter cost and production figures were released and higher‑cost assets were flagged for review.
Mid‑tier miner St Barbara was the sector's worst performer, losing almost 14% after downgrading production guidance and saying its mines need gold near US$1,400/oz to be viable. Evolution Mining shares fell more than 6% after reporting an 'all‑in' cost of $1,353/oz for the March quarter and producing less gold than expected, though it kept full‑year guidance.
'All‑in' production costs measure the total cost to produce an ounce of gold. They matter because mines with all‑in costs higher than the market gold price can be unprofitable, which can prompt reviews, cost cuts, asset sales or downgraded guidance—factors that affect share prices and dividends.
Investors should watch miners' reported all‑in costs versus the prevailing gold price, any company statements about reviewing or simplifying assets, production guidance revisions, cost‑cutting measures (like job cuts), and share‑price reactions. These signals can indicate which operations are at risk and how management is protecting cashflow.
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