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Newcrest Mining Limited – FY21 Full Year Results

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Newcrest Mining Limited – FY21 Full Year Results

 

 

 

 

 

(figures are in US$ except where stated)

 

Newcrest (ASX: NCM) (TSX: NCM) delivers record profit and free cash flow and a 129% increase in final dividend(1),(2),(3),(4)

 

  • Creating a brighter future for people through safe and responsible mining
  • Zero fatalities and life-changing injuries, underpinned by industry-leading low injury rates(5)
  • Goal of net zero carbon emissions by 2050(6)
  • Cadia renewable energy contract signed – on track for 30% reduction in Group emissions intensity by 2030(7)
  • Strong operating performance and higher prices translate to record profit and free cash flow
  • Gold production of 2.1 million ounces(8), with record copper production of 142.7 thousand tonnes
  • Record Statutory and record Underlying profit of $1.2 billion(9),(10), up 80% and 55% respectively
  • Record annual free cash flow of $1.1 billion(10)
  • All-In Sustaining Cost (AISC) of $911/oz(8),(10),(11), delivering a record AISC margin of 49% or $876/oz(10),(11),([12])
  • Record mine and mill performance at Cadia, underpinning record copper production and its lowest reported annual AISC of negative $109/oz
  • Strong balance sheet is well positioned for growth
  • Net cash position of $176 million as at 30 June 2021
  • Significant liquidity with $3.9 billion in cash and committed undrawn bank facilities
  • Early repayment of 2022 Corporate Bonds and renegotiation of bilateral bank debt facilities
  • Next corporate bond debt repayment not due until May 2030
  • Advancing multiple organic growth options
  • Exploration decline development works progressing well at Red Chris and Havieron
  • First production from Cadia Molybdenum Plant expected by the end of September 2021([13])
  • Board approves Cadia PC1-2 Pre-Feasibility Study to Feasibility Stage
  • Board approves Telfer WDS5 cutback
  • Sixth consecutive year of increased dividends
  • Final fully franked dividend of US 40 cps, 129% higher than the prior year
  • Record total dividends for FY21 of US 55 cps, equal to a 41% payout of FY21 free cash flow
  • Earnings per share of 142.5 cents, 71% higher than prior year

 

Newcrest Managing Director and Chief Executive Officer, Sandeep Biswas, said, “Newcrest has delivered a strong operational and financial performance for the 2021 financial year, producing 2.1 million ounces of gold at an AISC of $911 per ounce. Together with the benefit of higher gold and copper prices, this translated into a record statutory and underlying profit of $1.2 billion and a record free cash flow of $1.1 billion.”

 

“At Newcrest our Purpose of Creating a brighter future through safe and responsible mining is core to how we run our business. We are now nearly six years free of fatalities and life-changing injuries and have reported a 12% improvement in injury rates compared to the prior year. Notwithstanding the challenges brought by COVID-19, our extensive precautionary measures and focus on safety has enabled us to achieve our full year guidance. At the same time, we were also able to contribute our expertise to assist local governments and our host communities with their response to the virus.”

 

In May 2021 we announced our goal of net zero carbon emissions by 2050. We have made solid progress implementing our sustainability objectives throughout our business and continue to target improvements in water usage, biodiversity and emissions reductions.”

 

“The Board has approved the Cadia PC1-2 Pre-Feasibility Study to the next stage, the Feasibility Study stage. The Study updates and defines a significant part of Cadia’s future mine plan. The Board also approved the Early Works program to establish critical infrastructure in parallel with the Feasibility Study. PC1-2 has an attractive rate of return and is expected to help sustain Cadia’s position as a Tier 1, low-cost producer for decades to come.”

 

Mr Biswas noted that Newcrest’s strong financial position enables its investment in attractive growth projects. “We have significant financial capacity to fund our pipeline of attractive organic growth options, both from the expected cash flow generation over the development period and our strong balance sheet.”

 

On the increase in shareholder returns, Mr Biswas said “Our dividend policy targets total dividends for a financial year to be in the range of 30-60% of that financial year’s free cashflow, with a minimum annual dividend of US 15 cents per share. Given our record free cash flow generation for FY21, strong balance sheet and positive outlook the Board has approved a final dividend of US 40 cents per share, which is 129% higher than last year’s final dividend. This equates to a record total full year dividend of US 55 cents per share which represents a 41% payout of FY21’s free cashflow and marks our sixth consecutive year of increasing dividends to shareholders.”

 

“In the coming months we look forward to finalising key Pre-Feasibility Studies for Red Chris, Havieron and Lihir. We are striving to bring Havieron and the Red Chris block cave into production as soon as possible. Phase 14A at Lihir represents further upside from the current mine plan and brings forward our aspiration for Lihir to be a 1 million ounce plus annual producer” said Mr Biswas.

 

Summary of Operating and Financial Results

 

 

For the 12 months ended 30 June

 

Endnote UoM 2021 2020 Change Change %
TRIFR 14 mhrs 2.3 2.6 (0.3) (12%)
Group production – gold 8 oz 2,093,322 2,171,118 (77,796) (4%)
– copper t 142,724 137,623 5,101 4%
Revenue $m 4,576 3,922 654 17%
EBITDA 10 $m 2,443 1,835 608 33%
EBIT 10 $m 1,770 1,191 579 49%
Statutory profit 9 $m 1,164 647 517 80%
Underlying profit 10 $m 1,164 750 414 55%
Cash flow from operating activities $m 2,302 1,471 831 56%
Free cash flow* 10 $m 1,104 (621) 1,725 278%
EBITDA margin 10 % 53.4 46.8 6.6 14%
EBIT margin 10 % 38.7 30.4 8.3 27%
All-In Sustaining Cost 8,10,11 $/oz 911 862 49 6%
All-In Sustaining Cost margin 10,11,12 $/oz 876 668 208 31%
Realised gold price 15 $/oz 1,796 1,530 266 17%
Realised copper price 15 $/lb 3.66 2.57 1.09 42%
Earnings per share (basic) US$ cents 142.5 83.4 59.1 71%
Earnings per share (diluted) US$ cents 142.1 83.1 59.0 71%
Dividends paid per share US$ cents 32.5 22.0 10.5 48%
Cash and cash equivalents $m 1,873 1,451 422 29%
(Net cash) or net debt $m (176) 624 (800) (128%)
Leverage ratio 10 times (0.1) 0.3 (0.4) (133%)
Gearing % (1.8) 6.8 (8.6) (126%)
ROCE 10 % 18.5 13.8 4.7 34%

 

 

*Free cash flow in the prior period includes the acquisition of Red Chris (70%) for $769 million, the acquisition of Fruta del Norte finance facilities for $460 million, further investments in Lundin Gold of $79 million, net proceeds from divesting Gosowong of $20 million and $3 million for an interest in Antipa Minerals Ltd.

 

Refer to the Company’s “ASX Appendix 4E and Financial Report” released on 19 August 2021, and the Operating and Financial Review in particular, for more detail on the Company’s financial results.

 

FY21 Final Dividend

 

Newcrest looks to pay ordinary dividends that are sustainable over time having regard to its cash flow generation, its reinvestment options in the business and external growth opportunities, its financial policy metrics and its balance sheet strength. Newcrest targets a total annual dividend payout of 30-60% of free cash flow generated for the financial year, with the annual total dividends being at least US 15 cents per share on a full year basis.

 

Having regard to the above-mentioned considerations, the Newcrest Board has determined that a final fully franked dividend of US 40 cents per share will be paid on Thursday, 30 September 2021. The final dividend is 129% higher than the final dividend for FY20 and marks the sixth consecutive year of increasing dividend payments to shareholders.

 

The record date for entitlement is Friday, 27 August 2021. The financial impact of the FY21 final dividend amounting to $327 million has not been recognised in the Consolidated Financial Statements for the year. The Company’s Dividend Reinvestment Plan remains in place.

 

COVID-19 Update

 

To date, Newcrest has not experienced any material COVID-19 related disruptions to production or to the supply of goods and services.

 

At the date of this report, the number of COVID-19 cases at Lihir remains at low levels that are within the capability of the care and treatment and isolation facilities, with the majority of these cases continuing to be asymptomatic. Newcrest continues to strengthen its COVID-19 controls at Lihir, focusing on containment through extensive contact tracing and isolation procedures. Charter flights with restricted capacity are operating between Papua New Guinea and Australia, as are limited commercial flights between Port Moresby and Brisbane.

 

There were no material COVID-19 related events impacting gold production at Lihir during the financial year. However, as advised in the March 2021 quarterly report, the ability to attract labour, travel restrictions, contact tracing and associated isolation requirements has impacted total material mined. Delays have also been experienced on development projects (including Phase 14A ground support trials) and shutdown performance due to difficulty in mobilising and accommodating labour. There remains a risk of COVID-19 impacting production at Lihir and this continues to be closely managed.

 

All of Newcrest’s operations have business continuity plans and contingencies in place which strive to minimise disruptions due to the pandemic and to best position the operations to continue producing. Should any material impacts arise, Newcrest will inform the market in line with its continuous disclosure obligations.

 

In FY21, Newcrest incurred ~$70 million in COVID-19 management costs, of which $53 million related to Lihir. Costs associated with managing COVID-19 risks in FY21 were around $30 million higher than anticipated due to more extensive testing, longer quarantining periods, additional accommodation, rostering and other labour costs, and other preventative actions. Elevated costs related to the pandemic are expected to continue throughout FY22.

 

Newcrest established a A$20 million Community Support Fund in April 2020 to support host communities and jurisdictions in their response to the COVID-19 pandemic. In FY21, the Fund supported a range of initiatives in Australia, Papua New Guinea, British Columbia and Ecuador including the provision of emergency medical equipment, food supplies, mental health support, support for small businesses, and vaccine rollout.

 

Summary of Full Year Financial Results

 

Statutory profit and Underlying profit was a record $1,164 million in the current period.

 

Underlying profit of $1,164 million was $414 million (or 55%) higher than the prior period primarily driven by higher realised gold and copper prices, favourable fair value adjustments recognised on copper derivatives and Newcrest’s investment in the Fruta del Norte finance facilities and record copper production from Cadia. These benefits were partially offset by lower gold sales volumes driven by lower production, increased income tax expense as a result of the Company’s improved profitability in the current period, the unfavourable impact on operating costs (including depreciation) from the strengthening of the Australian dollar against the US dollar, additional costs associated with COVID-19 measures, higher treatment, refining and transportation costs and higher price-linked costs such as royalties.

 

Underlying profit

 

  For the 12 months ended 30 June 
US$m 2021 2020 Change Change %
Gold revenue 3,584 3,278 306 9%
Copper revenue 1,137 778 359 46%
Silver revenue 26 16 10 63%
Less: treatment and refining deductions (171) (150) (21) (14%)
Total revenue 4,576 3,922 654 17%
Operating costs (2,155) (1,946) (209) (11%)
Depreciation and amortisation (650) (622) (28) (5%)
Total cost of sales (2,805) (2,568) (237) (9%)
Corporate administration expenses (143) (117) (26) (22%)
Exploration expenses (69) (64) (5) (8%)
Share of profit/(losses) of associates 26 (37) 63 170%
Other income 185 55 130 236%
Net finance costs (102) (102) 0%
Income tax expense (504) (338) (166) (49%)
Non-controlling interest (1) 1 100%
Underlying profit 1,164 750 414 55%

 

Free cash flow

 

Newcrest’s record free cash flow of $1,104 million was $1,725 million higher than the prior period, with the prior period also characterised by a net cash outflow of $1,291 million relating to M&A growth investments, compared to $21 million outflow in the current period.

 

‘Free cash flow before M&A activity’ was $455 million (or 68%) higher than the prior period, with higher operating cash flows only partially offset by an increased investment in major capital projects at Cadia, Lihir, Red Chris and Havieron, higher sustaining capital at all continuing operations and increased production stripping activity at Lihir and Red Chris.

 

In the current period, Newcrest received net pre-tax cashflows of $92 million from finance facilities acquired from Lundin Gold Inc, relating to the Fruta del Norte mine. This is reflected within the cash flow statement as $54 million in operating cash flow (interest payments received) and $38 million in investing cash flow (primarily principal repayments received).

 

 

  For the 12 months ended 30 June 
US$m 2021 2020 Change Change %
Cash flow from operating activities 2,302 1,471 831 56%
    Production stripping and sustaining capital expenditure (524) (422) (102) (24%)
    Major capital expenditure (non-sustaining) (595) (273) (322) (118%)
Total capital expenditure (1,119) (695) (424) (61%)
    Reclassification of capital leases 11 4 7 175%
    Exploration and evaluation expenditure (115) (113) (2) (2%)
    Net receipts from Fruta del Norte finance facilities 38 1 37 3,700%
    Proceeds from sale of property, plant and equipment 8 2 6 300%
Free cash flow (before M&A activity) 1,125 670 455 68%
    Acquisition payment for a 70% interest of Red Chris (769) 769 100%
    Acquisition of Fruta del Norte finance facilities (460) 460 100%
    Payment for investment in Lundin Gold (8) (79) 71 90%
    Payment for investment in SolGold (10) (10)
    Payment for investment in Antipa Minerals (3) (3) 0%
    Proceeds from sale of Gosowong, net of cash divested 20 (20) (100%)
Free cash flow 1,104 (621) 1,725 278%

 

 

Balance Sheet

 

US$m As at
30 Jun 2021
As at
30 Jun 2020
Change Change %
Assets
Cash and cash equivalents 1,873 1,451 422 29%
Trade and other receivables 289 305 (16) (5%)
Inventories 1,505 1,573 (68) (4%)
Other financial assets 641 546 95 17%
Current tax assets 3 1 2 200%
Property, plant and equipment 9,788 8,809 979 11%
Goodwill 19 17 2 12%
Other intangible assets 32 24 8 33%
Deferred tax assets 54 65 (11) (17%)
Investment in associates 442 386 56 15%
Other assets 68 65 3 5%
Total assets 14,714 13,242 1,472 11%
Liabilities
Trade and other payables (577) (520) (57) (11%)
Current tax liability (107) (23) (84) (365%)
Borrowings (1,635) (2,017) 382 19%
Lease liabilities (62) (58) (4) (7%)
Other financial liabilities (110) (274) 164 60%
Provisions (735) (623) (112) (18%)
Deferred tax liabilities (1,364) (1,114) (250) (22%)
Total liabilities (4,590) (4,629) 39 1%
Net assets 10,124 8,613 1,511 18%
Equity
Equity attributable to owners of the parent 10,124 8,613 1,511 18%
Total equity 10,124 8,613 1,511 18%

 

 

Summary of Full Year Results by Asset(16)

 

  For the 12 months ended 30 June 2021 
UoM Cadia Lihir Telfer Red
Chris(17)
Fruta del
Norte(8),(11)
Other Group
Operating
Production
    Gold koz 765 737 416 46 129 2,093
    Copper kt 106 13 23 143
    Silver koz 643 38 149 114 945
Sales
    Gold koz 766 773 411 46 120 2,116
    Copper kt 105 13 23 141
    Silver koz 638 38 149 111 936
Financial
Revenue $m 2,180 1,425 725 246 4,576
EBITDA $m 1,615 590 137 79 22 2,443
EBIT $m 1,416 313 33 9 (1) 1,770
Net assets $m 3,169 4,125 (59) 1,003 1,886 10,124
Operating cash flow $m 1,796 621 151 114 (380) 2,302
Investing cash flow $m (564) (300) (69) (151) (114) (1,198)
Free cash flow $m 1,232 321 82 (37) (494)* 1,104
AISC(11) $m (83) 1,076 606 103 91 135 1,928
$/oz (109) 1,391 1,473 2,248 753 911
AISC Margin(11) $/oz 1,905 405 323 (452) 876

 

* Free cash flow for ‘Other’ includes:

  • A net inflow of $20 million relating to other investing activities (comprising net receipts from Fruta del Norte finance facilities of $38 million, proceeds from the sale of property, plant and equipment of $3 million, offset by $21 million relating to payments to maintain Newcrest’s existing interests in associates),
  • income tax paid of $233 million,
  • exploration expenditure of $79 million,
  • corporate costs of $105 million,
  • other capital expenditure of $57 million,
  • net interest paid of $46 million, and
  • net working capital inflows of $6 million.

 

Refer to the Company’s “ASX Appendix 4E and Financial Report” released on 19 August 2021, and the Operating and Financial Review in particular, for an operational overview for the year.

 

Guidance(3),(16),(18)

 

Newcrest provides the following guidance for FY22, subject to market and operating conditions.

 

The production guidance numbers for FY22 assume no COVID-19 related interruptions. However, the AISC expenditure guidance for FY22 includes an estimate for additional costs associated with managing the business in a COVID-19 context (including on matters such as flights, transport, rosters, leave, screening and testing, and disbursements from the Community Support Fund) in the order of $35-45 million.

 

Guidance for the 12 months ending 30 June 2022

 

Cadia Lihir Telfer Red Chris Fruta del Norte(a) Havieron Other(b) Group
Production
Gold – koz 540 – 610 700 – 800 390 – 440 40 – 42 120 – 135 1,800 – 2,000
Copper – kt 85 – 95 ~15 23 – 25 125 – 130
All-In-Sustaining Cost (AISC) – Includes production stripping (sustaining) and sustaining capital
AISC – $m (100) – 30 950 – 1,040 600 – 680 (25) – 15 100 – 104 135 – 145 1,720 – 1,920
Capital Expenditure ($m)
– Production
stripping (sustaining)
105 – 115 25 – 35 130 – 140
– Production
stripping (non-sustaining)
50 – 70 50 – 70
– Sustaining
capital
160 – 180 100 – 120 50 – 60 65 – 70 15 – 20 390 – 440
– Major projects
(non-sustaining)
580 – 650 105 – 135 110 – 130 65 – 85 6 – 8 890 – 990
Total Capital expenditure 740 – 830 310 – 370 75 – 95 225 – 270 65 – 85 21 – 28 1,460 – 1,640
Exploration and Depreciation ($m)
Exploration expenditure 150 – 160
Depreciation and amortisation (including depreciation of production stripping) 700 – 750

 

(a) The Fruta del Norte guidance represents Newcrest’s 32% interest in the annualised production and AISC for Fruta del Norte based on Lundin Gold’s market release on 8 December 2020. This release estimated gold production for the 2021 calendar year to be in the range of 380koz to 420koz at an AISC of $770/oz to $830/oz

(b) Other includes major project expenditure (non-sustaining) in relation to Wafi-Golpu

 

Creating a brighter future for people through safe and responsible mining

 

Improved Safety Performance

 

Newcrest’s Safety Transformation Plan continues to yield benefits, with nearly six years free of fatalities and life changing injuries, and a 12% reduction in injury rates compared to the prior period.

 

Red Chris delivered a standout safety performance for the financial year, reporting a 48% reduction in injury rates compared to the prior period. This remarkable achievement highlights the success of Newcrest’s NewSafe program in transforming on-site safety behaviours combined with the significant investments that Newcrest has made to improve on-site working conditions.

 

Lihir and Telfer also delivered a 50% and 14% reduction respectively in injury rates compared to the prior period. Both operations have successfully integrated Newcrest’s NewSafe program over the last six years and have demonstrated how visible safety leadership, proactive hazard reporting and a workforce committed to improving the safety culture at their workplace can deliver improvements to their safety performance.

 

Goal of Net Zero Carbon Emissions

 

Newcrest recognises that is has a responsibility to do its part to reduce the impact of climate change. As previously announced, Newcrest has set a goal of net zero carbon emissions by 2050 which relates to its operational (Scope 1 and Scope 2) emissions. Additionally, Newcrest intends to work across its value chain to reduce its Scope 3 emissions.

 

This goal is in addition to the target set in June 2019 to reduce Newcrest’s greenhouse gas emissions intensity by 30% by 2030(7).

 

Newcrest has developed GHG Management Plans for each of its managed operating sites to understand, define and action abatement opportunities and has linked senior executive incentive payments directly to the achievement of these objectives. The measurement of GHG emissions across the full value chain is progressively improving, the use of renewable energy sources is increasing, and Newcrest is well advanced in assessing the risks and opportunities for the business under selected climate change scenarios in line with the Paris Agreement goals and its commitment to progressive Task Force on Climate-Related Financial Disclosures reporting.

 

Reducing Greenhouse Gas Emissions

 

As announced in December 2020, Newcrest has entered into a 15-year renewable Power Purchase Agreement (PPA) with a wind farm developer for an amount of energy which represents a significant portion of Cadia’s future projected energy requirements. The PPA will act as a partial hedge against future electricity price increases and will provide Newcrest with access to large-scale generation certificates which Newcrest intends to surrender to achieve a reduction in its greenhouse gas emissions. The PPA, together with the forecast decarbonisation of electricity generation in New South Wales, is expected to help deliver a ~20% reduction in Newcrest’s greenhouse gas emissions and is a significant step towards the achievement of Newcrest’s targeted 30% reduction by 2030(7).

 

Lihir Landholder Agreements

 

On 22 December 2020, Newcrest announced that it had signed new compensation, relocation and benefits sharing agreements with the mining lease area landholders at Lihir. It is expected that these new agreements will enhance socio-economic development outcomes for mining lease area landholders and enable benefits to be distributed directly to their intended beneficiaries. The agreements also enable the efficient and transparent distribution of compensation and benefits without a material increase in quantum.

 

Growing copper exposure

 

Newcrest reported record copper production of 142.7kt in FY21, which represents 22% of its total net revenue for the year. Newcrest expects that its copper contribution will continue to increase at Cadia, together with the potential growth in contribution from its development projects at Red Chris, Havieron and Wafi-Golpu. For FY22 Newcrest expects to produce 125-130kt of copper.

 

Advancing multiple organic growth options

 

Telfer West Dome Stage 5 Cutback

 

Newcrest announced on 12 August 2021 that it will proceed with the West Dome Stage 5 cutback (the cutback) at its Telfer operation in Western Australia. The cutback underpins the continuity of operations at Telfer, with further mine life extension opportunities to be assessed within the open pit and underground.

 

Telfer is strategically well positioned in the highly prospective Paterson Province, with its existing infrastructure and processing capacity providing benefits to the nearby Havieron Project (operated by Newcrest under a Joint Venture Agreement with Greatland Gold) and Newcrest’s other exploration projects in the region.

 

The Newcrest Board has approved A$246 million (~US$182 million(19)) of funding for the cutback, of which approximately one third will be in the form of capitalised production stripping, and Newcrest has entered into a contract for the works to be undertaken. The cutback is located between West Dome Stage 2 and West Dome Stage 4, both of which will continue to be mined in conjunction with Stage 5.

 

Drilling in the area between the Stage 2 and Stage 5 boundary has also returned positive results to date, providing further opportunities to extend the life of the West Dome. No additional permits, licences or regulatory approvals will be required for the cutback. There is no intention to undertake any further gold price hedging in relation to this cutback investment.

 

Production stripping for the Stage 5 cutback will commence in September 2021, with first ore production expected to be delivered to the Telfer mill in March 2022.

 

Cadia Molybdenum Plant

 

Newcrest expects to achieve first production from the Molybdenum Plant by the end of September 2021(13). The Molybdenum Plant is expected to deliver an additional revenue stream for Cadia in the form of molybdenum concentrate which will be recognised as a by-product credit to AISC.

 

Cadia PC1-2 Pre-Feasibility Study

 

The Newcrest Board has approved the Cadia PC1-2 Pre-Feasibility Study (the Study) to the Feasibility Stage, enabling the commencement of the Feasibility Stage (the Feasibility Study) and Early Works Program.

 

The Study updates and defines a significant portion of Cadia’s future mine plan, with the development of PC1-2 accounting for ~20% of Cadia’s current Ore Reserves. The approved commencement of the Early Works Program will allow critical infrastructure to be established in parallel with the Feasibility Study before the commencement of the Main Works program in the second half of CY22. A$120 million (~$US90 million) of funding has been approved for this Early Works Program which is expected to commence in the December 2021 quarter.

 

Pre-Feasibility Study key findings for PC1-2:(20),(21),(22)

 

  • Estimated total capital expenditure of ~A$1.3 billion (~US$0.9 billion)
  • Real, after-tax internal rate of return of 21.5%
  • Net Present Value of A$2.0 billion (US$1.5 billion)
  • ~17 year mine life from first production, at an average of 15mtpa
  • Total ore production of 258mt producing 3.5Moz of gold and 660kt of copper
  • Average AISC of A$54/oz (US$41/oz)
  • Enhanced footprint design and productivity allowing:
    • Deferral of ~25% of the previously required footprint into a future PC1-3 project
    • A$150 million (US$112 million) reduction in the initial capital spend
    • Enhanced average gold and copper grades in the medium term

 

The findings of the Study will be progressed in a Feasibility Study which Newcrest expects to complete in Q3 CY22.

 

See separate release titled “Cadia PC1-2 Pre-Feasibility Study delivers attractive returns” dated 19 August 2021 for further information.

 

Cadia Expansion Project

 

Cadia is currently undergoing a previously-approved, significant expansion project which is expected to help sustain its position as one of the largest, lowest cost and long life gold mines in the world.

 

The Expansion Project is in two stages(23):

 

  • Stage 1 comprises the development of the next block cave, PC2-3, and an increase to the nameplate capacity of the process plant to 33mtpa
  • Stage 2 is focused on increasing the plant processing capacity from 33mtpa to 35mpta as well as delivering life of mine gold and copper recovery improvements and reducing unit costs

 

Execution of the works for both stages of the Project remain on track(13).

 

Lihir Phase 14A Pre-Feasibility Study

 

In February 2021, Newcrest announced the findings of its Lihir Mine Optimisation Study which included the identification of a new opportunity called Phase 14A. This opportunity is currently being progressed in a separate Pre-Feasibility Study (‘Phase 14A PFS’) which Newcrest expects to release by the end of September 2021.

 

The Phase 14A PFS is focused on extending the Phase 14 cutback and safely steepening the walls of the pit by utilising civil engineering techniques to access existing Indicated Mineral Resources which would have otherwise been inaccessible through standard mining techniques. The Phase 14A PFS work to date has identified approximately 20Mt at 2.4g/t Au (including 13Mt at 3g/t Au) of Indicated Mineral Resource(24) that could be accessed.

 

Additionally, the cutback would open a separate mining front, providing further flexibility for fresh competent ore feed. The cutback is fully permitted and is within the existing mine lease.

 

Site field investigation is underway, including geotechnical drilling and preparation for contractor mobilisation for trial works. Field trials of the wall support technology are planned for FY22 with long lead materials ordered and the mobilisation of specialist contractors in progress.

 

Newcrest is currently assessing whether applying steep wall engineering techniques to its other cutbacks at Lihir could enable access to additional high grade mill feed and potentially further defer construction of the full Seepage Barrier, which is currently subject to a Feasibility Study.

 

Havieron Project

 

The Havieron Project is located 45km east of Newcrest’s Telfer operation and is operated by Newcrest under a Joint Venture Agreement with Greatland Gold plc. Newcrest announced on 30 November 2020 that it had met the Stage 3 expenditure requirement (US$45 million) and is entitled to earn an additional 20% joint venture interest (in addition to its existing 40% interest), resulting in an overall joint venture interest of 60% (Greatland Gold 40%).

 

Newcrest can earn up to a 70% joint venture interest through total expenditure of US$65 million and the completion of a series of exploration and development milestones (including the delivery of a Pre-Feasibility Study) in a four-stage farm-in over a six year period that commenced in May 2019. Newcrest may acquire an additional 5% interest at the end of the farm-in period at fair market value.

 

The Joint Venture Agreement also includes tolling principles reflecting the intention of the parties that, subject to a successful exploration program, Feasibility Study and a positive decision to mine, the resulting joint venture mineralised material will be processed at Telfer.

 

In FY21, Newcrest announced several key milestones for the Project, including:

 

  • the completion of infill drilling and the commencement of an extensive growth drilling campaign
  • an initial Inferred Mineral Resource estimate
  • the commencement of early works construction activities

 

Newcrest commenced its exploration drilling program in June 2019 and has progressively increased its drilling activities such that eight drill rigs are currently operational. Results from Newcrest’s infill drilling program at Havieron continue to support the geological and grade continuity for Newcrest’s ongoing studies and continue to confirm Newcrest’s previously reported drilling results.

 

Exploration activities are also focused on an extensive growth drilling program across several key targets. In June 2021, Newcrest announced a number of new high grade extensions to the South East Crescent zone, located outside of the initial Inferred Mineral Resource estimate. These results support the potential for incremental resource extensions with additional drilling.

 

In December 2020, Newcrest announced its initial Inferred Mineral Resource Estimate for the Project of 52Mt @ 2.0g/t Au and 0.31% Cu for 3.4Moz Au and 160kt Cu(25),(26),(27). Mineralisation remains open in multiple directions outside of the initial Inferred Mineral Resource, which indicates the possibility that the resource could continue to grow over time with Newcrest’s planned drilling activity.

 

In the second half of the FY21 financial year, Newcrest announced that it had commenced its early works program. Subsequent to the completion of the box cut and portal, Newcrest commenced construction of the exploration decline in May 2021 which is critical to achieving first production from the Project in the next two to three years(28).

 

Works to progress the necessary approvals and permits that are required to commence the development of an operating underground mine and associated infrastructure at the Project are ongoing(29).

 

Newcrest expects to release its Havieron Pre-Feasibility Study in the second half of CY21.

 

Red Chris

 

Red Chris is a joint venture between Newcrest (70%) and Imperial Metals Corporation (30%). Newcrest acquired its interest in, and operatorship of, Red Chris on 15 August 2019.

 

Over FY21, Newcrest announced several key milestones in relation to Red Chris, including:

 

  • discovery of East Ridge – a new zone of higher grade mineralisation
  • its initial Mineral Resource estimate for Red Chris
  • the commencement of early works construction activities

 

Since acquisition, Newcrest has undertaken a significant drilling campaign that was focused on the delivery of Newcrest’s initial Mineral Resource estimate for Red Chris. In addition, Newcrest has a brownfields exploration program at Red Chris that is concentrated on the discovery of additional zones of higher grade mineralisation within the Red Chris porphyry corridor (including targets outside of the initial Mineral Resource estimate).

 

To date, Red Chris’ brownfield exploration program has delivered considerable exploration success, including the discovery of East Ridge which is a new zone of higher grade mineralisation located outside of Newcrest’s initial Mineral Resource estimate. In July 2021, Newcrest reported its highest grade intercept to date from this zone, supporting the potential for resource growth over time.

 

In FY20, Newcrest reported the existence of multiple discrete ‘pods’ of higher grade mineralisation in the East Zone. Newcrest is currently evaluating options to ‘early mine’ these pods with the aim of generating cash flows prior to the completion of a block cave development at Red Chris.

 

As announced in March 2021, Newcrest released its initial Mineral Resource estimate(27),(30),(31) for Red Chris which comprised:

  • A Measured and Indicated Mineral Resource estimate of 980Mt @ 0.41g/t gold and 0.38% copper for 13Moz contained gold and 3.7Mt contained copper
  • An Inferred Mineral Resource estimate of 190Mt @ 0.31g/t gold and 0.30% copper for 1.9Moz contained gold and 0.57Mt contained copper

 

Newcrest’s initial Mineral Resource estimate is expected to support the development of a high margin underground block cave(32) and is a key input into the Red Chris Block Cave Pre-Feasibility Study which Newcrest expects to release by the end of September 2021.

 

Newcrest commenced construction of the exploration decline in June 2021 following the receipt of the necessary regulatory and funding approvals and the completion of the box cut and other surface infrastructure. The commencement of the exploration decline underpins Newcrest’s objective of having a block cave in operation at Red Chris within the next five to six years(28).

 

Wafi-Golpu Project

 

In December 2020 an Environment Permit for the Wafi-Golpu Project was granted.

 

As previously advised, subsequent to the grant of the Environment Permit, the Governor of Morobe Province and the Morobe Provincial Government commenced legal proceedings in the National Court in Papua New Guinea seeking judicial review of the decision to issue the Environment Permit. The participants in the Wafi-Golpu Joint Venture (including Newcrest) are not defendants to the proceedings. The National Court is yet to determine this judicial review application. At this stage, project and permitting activities can still progress.

 

Newcrest, together with its Wafi-Golpu Joint Venture partner Harmony, is currently engaging with the State of Papua New Guinea to progress permitting of the Wafi-Golpu Project and has commenced discussions with the State in relation to the Special Mining Lease.

 

Capital Structure

 

Newcrest’s financial objectives are to meet all financial obligations, maintain a strong balance sheet to withstand cash flow volatility, be able to invest capital in value-creating opportunities, and to provide returns to shareholders. Newcrest looks to maintain a conservative level of balance sheet leverage.

 

On 2 March 2021, Newcrest renewed its unsecured bilateral bank lending facilities with its existing 13 bank lenders, extending the maturity dates. Each bank has committed approximately US$154 million in facilities for an overall unchanged quantum of US$2 billion on similar commercial terms for Newcrest.

 

These facilities have tenors of three or five years, the aggregate of which is as follows:

  • US$1,077 million of facilities maturing in FY24
  • US$923 million of facilities maturing in FY26

 

On 28 April 2021, Newcrest completed the mandatory redemption and cancellation of the outstanding US$380 million owing of its 4.200% Senior Guaranteed Notes, otherwise maturing 1 October 2022.

 

These refinancing and bond buyback transactions underpin Newcrest’s objective of having a strong balance sheet, considerable liquidity and financial flexibility at low cost.

 

Newcrest’s net cash as at 30 June 2021 was $176 million. This comprises $1,873 million of cash holdings, less $1,635 million of capital market debt and lease liabilities of $62 million.

 

At 30 June 2021, Newcrest had liquidity coverage of $3,873 million, comprising $1,873 million of cash and $2,000 million in committed undrawn bilateral bank debt facilities with tenors ranging from 2024 to 2026.

 

Newcrest’s financial policy metrics and its performance against them are as follows:

 

Metric Policy ‘looks to’ As at
30 Jun 2021
As at
30 Jun 2020
Credit rating (S&P/Moody’s) Investment grade BBB/Baa2 BBB/Baa2
Leverage ratio (Net debt to EBITDA) Less than 2.0 times (0.1) 0.3
Gearing ratio Below 25% (1.8%) 6.8%
Cash and committed undrawn bank facilities At least $1.5bn, of which
~1/3 is in the form of cash
$3.87bn
($1.87bn cash)
$3.45bn
($1.45bn cash)

 

 

Telfer Gold Hedging

 

No new hedging in relation to Telfer was undertaken in the current period.

 

The total outstanding volume and prices of gold hedged for future years at Telfer and in total for Newcrest are:

 

Financial Year Ending Gold Ounces Hedged Average Price A$/oz
30 June 2022 204,615 1,902
30 June 2023 137,919 1,942
Total 342,534 1,918

 

 

The current period included 216,639 ounces of Telfer gold sales hedged at an average price of A$1,864 per ounce, representing a net revenue loss of $99 million for the current period. At 30 June 2021, based on gold forward curves, the unrealised mark-to-market loss of the remaining hedges was $110 million.

 

Approximately 90% of Newcrest’s sales in the period were unhedged and therefore benefitted from the strong gold prices in the period.

 

Newcrest’s decision in the prior period to cease its program of hedging the impacts of copper and gold price movements during the quotational period resulted in a net fair value gain in other income in the current period of $124 million, driven by the increase in gold and copper prices in the current period.

 

Dividend Dates, Currency & Dividend Reinvestment Plan

 

The Newcrest Board has determined that a final fully franked dividend of US 40 cents per share is to be paid on
30 September 2021. The key dates in relation to the final dividend are set out in the table below.

 

 

Action Date
Ex-Dividend Date Thursday, 26 August 2021
Record Date and Currency Conversion Date Friday, 27 August 2021
Election Date – final date to elect to participate in DRP and receive foreign currency Monday, 30 August 2021
VWAP period begins for DRP Tuesday, 31 August 2021
VWAP period ends for DRP Monday, 6 September 2021
Payment/Issue Date Thursday, 30 September 2021

 

 

The subscription amount for shares allotted under the DRP will be an amount in cents that is the arithmetic average of the daily volume weighted average sale price for Newcrest shares sold on the ASX during the VWAP period
(31 August – 6 September 2021) rounded down to the nearest full cent.

 

Payment Currencies

 

The currencies in which dividend payments will be made are included in the table below:

 

Currency to
be paid
Shareholders
Australian dollars All shareholders who will not be paid US dollars, PNG kina or NZ dollars in accordance with the circumstances set out below.
US dollars Shareholders who have nominated a US dollar bank account domiciled in the US by 5:00pm (AEST) Monday, 30 August 2021, being the Election Date.
Papua New Guinea kina Shareholders:

  • who have nominated a PNG kina bank account domiciled in PNG by 5:00pm (AEST) Monday, 30 August 2021, being the Election Date; or
  • with a registered address in PNG who have not nominated an Australian dollar bank account domiciled in Australia, or a US dollar bank account domiciled in the US, by 5:00pm (AEST) Monday, 30 August 2021, being the Election Date.
NZ dollars Shareholders:

  • who have nominated a NZ dollar bank account domiciled in New Zealand by 5:00pm (AEST) Monday, 30 August 2021, being the Election Date; or
  • with a registered address in New Zealand who have not nominated an Australian dollar bank account domiciled in Australia, or a US dollar bank account domiciled in the US, by 5:00pm (AEST) Monday, 30 August 2021, being the Election Date.

 

Payments made in Australian dollars, Papua New Guinea kina and New Zealand dollars will be converted from US dollars at the prevailing exchange rate on 27 August 2021, being the Record Date.

 

Dividend Reinvestment Plan

 

The Dividend Reinvestment Plan will apply to the final dividend. The DRP allows eligible shareholders to reinvest part or all of their dividends into Newcrest shares. No discount will be applied to allotments made under the DRP. A copy of the DRP Rules is available on the Company’s website at http://www.newcrest.com/investors

Posted August 19, 2021

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