MORE unpleasant surprises could emerge from Newcrest Mining's two troublesome growth projects after it offered an unusually broad guidance range for production over the coming year.
The nation's biggest listed goldminer has had a frustrating year. Problems at its Lihir and Cadia East developments forced it to downgrade its production guidance on multiple occasions.
Those downgrades eroded investor confidence. Newcrest's value almost halved over the past year - a loss of close to $17 billion - despite gold stocks traditionally faring well in times of uncertainty.
When asked yesterday if the worst of the turbulence was behind Lihir and Cadia, Newcrest's chief executive, Greg Robinson, cautioned that significant developments were still to be installed and trialled, particularly at Lihir.
Newcrest has not given full guidance for 2013 but it gave production guidance of between 700,000 and 900,000 ounces for Lihir, and 400,000 to 500,000 ounces for Cadia.
Mr Robinson said the Lihir guidance was being kept "deliberately very broad" as there were aspects of the project still to be installed before it is commissioned in December. "It's a very busy six months ahead," he said. He assured investors the company was "getting better" at running the mine "consistently" and a cost blowout on the $1.9 billion expansion at Cadia would be kept within 10 per cent of the original budget.
The Deutsche analyst Chris Terry said it was clear whether those two projects still contained risks, and 2013 would continue to be a transition period that sets up a foundation for good results and growth in the years ahead.
"The reason there's such a big range between the top and bottom [of the guidance], particularly at Lihir, is to allow for some potential issues that could arise as the project progresses," he said.
Newcrest reported gold production of 2.28 million ounces in the year to June 30, which was well below its original guidance of up to 2.92 million ounces, but in keeping with the revised guidance announced in April.
The market responded warmly to the result, and a rise in the gold price, pushing Newcrest shares 5 per cent higher in early trading. They eventually closed 1 per cent or 22? higher at $22.37.
Three of Newcrest's biggest shareholders - BlackRock, Commonwealth Bank and Fidelity Management - have reduced their stake in recent months, contributing to the share price slide.
Frequently Asked Questions about this Article…
What production guidance did Newcrest Mining give for Lihir and Cadia?
Newcrest gave a broad production guidance range for the year ahead: 700,000 to 900,000 ounces at Lihir and 400,000 to 500,000 ounces at Cadia.
Why did Newcrest issue such a wide production guidance range for Lihir?
CEO Greg Robinson said the Lihir guidance was kept "deliberately very broad" because key parts of the project still need to be installed and trialled before commissioning in December, so some outcomes remain uncertain.
What problems have affected Newcrest’s recent performance and investor confidence?
Operational issues at the Lihir and Cadia East developments forced Newcrest to downgrade production guidance multiple times, which eroded investor confidence and contributed to a large fall in market value over the past year.
How much gold did Newcrest produce in the year to June 30, and how did that compare with guidance?
Newcrest reported gold production of 2.28 million ounces for the year to June 30, which was well below its original guidance of up to 2.92 million ounces but in line with the revised guidance announced in April.
What did Newcrest say about the Cadia expansion cost blowout?
Newcrest said the cost blowout on the $1.9 billion Cadia expansion would be kept within 10% of the original budget.
How did the market react to Newcrest’s results and gold price movements?
The market responded warmly to the result and a rise in the gold price: Newcrest shares jumped about 5% in early trading and eventually closed roughly 1% higher at $22.37.
Are analysts optimistic about Newcrest’s outlook after these project issues?
Deutsche Bank analyst Chris Terry said risks still remain in the two projects and that 2013 would be a transition year, but it could set a foundation for better results and growth in the years ahead.
Have major shareholders been changing their stakes in Newcrest, and why does that matter for investors?
Yes—three of Newcrest’s biggest shareholders (BlackRock, Commonwealth Bank and Fidelity Management) have reduced their stakes in recent months, which contributed to downward pressure on the share price and is a signal investors watch closely when assessing confidence in management and projects.
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