Ground Breakers: Newcrest loves its new Havieron mine, but not that much

Newcrest holds fire on US$60 million option for 5% of Havieron gold-copper mine
Shares in Australia’s biggest gold miner lift as it declares “confident” US20c dividend
Energy stocks go mad on Friday, with Whitehaven Coal pushing to record share price high

Newcrest Mining (ASX:NCM) has rebuffed estimates placing the value of its upcoming Havieron gold-copper mine in WA at US$1.2 billion, saying it won’t pay the US$60m determined by an independent process for another 5% of the project.

Australia’s biggest gold miner needs the underground Havieron mine to extend the life of its Telfer mill and mine in WA’s Paterson province, and has spent millions exploring since it began a farm-in arrangement a few years ago with London-listed explorer Greatland Gold.

Newcrest owns 70% of Havieron, which according to a PFS last year would deliver 160,000ozpa at all in sustaining costs of US$743/oz over an initial nine-year mine life.

Greatland owns the other 30%, but has engaged in some freelancing when it comes to reporting on Havieron this year, releasing a resource update of 5.5Moz Au and 218kt Cu or 6.5M oz AuEq, an increase of 2.1Moz.

The number was not immediately endorsed by majority JV owner Newcrest when it was reported by the junior partner in March, but was effectively confirmed in a company wide resource and reserve update by the 2Mozpa miner today.

In July an adjudicator determined the price for an option Newcrest held over an additional 5% of the project at US$60m, a price NCM boss Sandeep Biswas now says does not meet its investment hurdles.

“The first 70% cost us US$65 million, which is an excellent investment,” he said on an earnings call today.

“And if you look at, as (CFO) Sherry (Duhe) alluded to, we’ve got a very rigorous capital allocation program, we’ve got a lot of projects to allocate capital to.

“And obviously, we’ve also got our shareholders to think about as well. And in that context, it didn’t make the returns compared to putting that US$60 million somewhere else. We didn’t need to do it.

“And we didn’t think it would deliver the sort of returns and the sort of thinking our shareholders expect from an owner’s mindset in this company.”

Newcrest surprises to the upside with US20c dividend

Newcrest shares were up 3.6% this morning after the $17 billion gold producer announced a statutory and underlying profit of US$872 million for FY22.

While that was a 25% decrease on the US$1.164b generated in 2021, NCM delighted investors with a US20c per share final dividend, well beyond its official policy of paying out between 30-60% of free cash flow.

While down on the 40c paid out last financial year, the payout took its overall returns to a healthy US27.5c for the full year after a US7.5c interim dividend announced in February.

NCM delivered 1.96Moz of gold and 120,650t of copper at all in sustaining costs of US$1043/oz in FY22, up 14% on the back of inflationary pressure and lower production, turning over US$4.2b in revenue and US$2.05b in EBITDA (down 8% and 16% respectively year on year).

Newcrest expects inflation of 6-8% in FY23, but the addition of the Brucejack mine in Canada after its buyout of Pretium Resources will see the company ramp up production to between 2.1-2.4Moz of gold and 135-155,000t of copper.

RBC Capital Markets analyst described the dividend as “confident”, coming in well above the investment bank’s 15cps forecast and consensus estimates of 21cps.

“NCM considers its balance sheet strength and ability to internally fund all upcoming projects justifies a higher payout,” he said in a note.

“A strong signal of internal confidence.

“FY23 gold guidance came 6% below us (-5% vs cons) and AISC guidance beat us and consensus by 3%. Given industry-wide cost pressures and softer guidance across the sector, we consider NCM’s FY23 guidance as a relative positive.

“This reasonable guidance is particularly reassuring given idiosyncratic uncertainties across NCM’s mines heading into FY23. The Reserve update was a slight incremental negative. Overall, we see this a positive result for NCM.”

Newcrest Mining (ASX:NCM) share price today:

Energy markets power gains as miners, coal stocks lift

Energy shortages are showing little sign of abating with bad news from the US, to Europe, to China, to East Asia and Australia, where industrial action will continue into September at Shell’s Prelude LNG terminal, all converging to push up prices.

Coal miners were among the biggest beneficiaries of the overnight run, with sector bellwether Whitehaven (ASX:WHC) up over 7% to $7.40 per share. If it holds, $7 billion capped WHC will close at a record high.

New Hope (ASX:NHC) was up 4.32%, with Yancoal (ASX:YAL) lifting 5.41% and Stanmore (ASX:SMR) 3% higher.

The energy sector gained a riotous 4.58% this morning, with materials stocks up 0.8%, led by Newcrest, IGO (ASX:IGO) and South32 (ASX:S32).