January 29, 2020 / 10:11 PM / 20 days ago

Newcrest second-quarter gold output drops, flags drought risk to output

MELBOURNE (Reuters) - Australia’s Newcrest Mining Ltd (NCM.AX) posted a 16% drop in second-quarter gold output on Thursday due to shutdowns at its Lihir mine, and flagged that production at its flagship Cadia mine could be impacted by year-end if a drought persists.

Newcrest said it was putting together “corrective action plans” on its Lihir and Telfer mines “with the objective of improving their performance over the next six months.”

The lower production over the October-December quarter was a result of shutdowns at its Lihir mine in Papua New Guinea as well lower ore grades there and at Telfer in Australia.

“It is a soft production result. As you can see, the market has sold it off,” said Dan Morgan of UBS in Sydney.

Shares in Newcrest fell by as much as 5.1% before trimming the losses, trading around A$30.20 ($20.65), down about 3.7%.

Australia’s biggest independent gold producer said production at Cadia could be hit this year if a drought continues in New South Wales state.

“Newcrest’s internal modeling ... indicates that if rainfall remains at 1-in-100 year lows (with the last two years being at this level) then production may be impacted by the end of calendar year 2020,” the miner said.

Bushfires that have scorched Australia over the southern hemisphere summer have damaged train lines and associated infrastructure, delaying shipments, but have had no direct impact on the Cadia mine, it said.

Bushfires in Australia have killed 33 people and about 1 billion animals since September, while some 2,500 homes and an area the size of Greece have been destroyed.

“Additional trains have been scheduled and the expectation is that these (Cadia) concentrate stocks will be cleared in the March 2020 quarter,” the miner said in a statement.

Cadia reported a 40% increase in output in the second quarter of the financial year compared with the previous quarter.

The Melbourne-based company also said Papua New Guinea withdrew support for a memorandum of understanding related to the Wafi-Golpu joint venture (WGJV) due to delays caused by legal proceedings.

“(Papua New Guinea) intends to resolve legal proceedings and to work with the WGJV to expedite the project permitting discussions,” the miner said.

The PNG government in September said it wants to keep 40% of gold produced from the proposed project, creating potential hurdles for Newcrest and co-owner Harmony Gold (HARJ.J).

Newcrest’s total gold production fell to 551,115 ounces in the three months ended Dec. 31, from 654,849 ounces a year earlier. It maintained its fiscal 2020 gold production forecast at between 2.38 million and 2.54 million ounces.

Reporting by Shriya Ramakrishnan and Shreya Mariam Job in Bengaluru; Additional reporting by Melanie Burton in MELBOURNE; Editing by Shinjini Ganguli, Sriraj Kalluvila and Tom Hogue

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