Newcrest Mining has revealed it is aiming to ‘simplify’ operations at the Lihir and Hidden Valley gold mines in Papua New Guinea, after writing down the value of its mines in PNG, Australia and Africa by AUD$6 billion (K12.6 billion).

The Lihir gold mine. Credit: Newcrest

As foreshadowed last month, the cuts reflect a slump in the price of gold, currency fluctuations, and high operating costs.

Newcrest is seeking to slash overall corporate costs by 20%, in the process closing its Brisbane office and cutting 250 Australian jobs.

‘Our focus on gold and low cost operations mainly in Australia and the Asia Pacific region remain firmly in place,’ said CEO Greg Robinson in a statement last Friday. ‘Newcrest will focus on cash flow by delivering the ramp ups at its two major lower costs assets (Lihir and Cadia valley) and on overall cost and capital reduction. The decision today represents an acceleration of our cost and capital reductions that have been in action over the past 12 months.’

The company is writing down the value of its Lihir project, for which it paid nearly AUD$10 billion in cash and shares in late 2010, by AUD$3.6 billion.

Newcrest’s shares have lost 70% of their value in the past two years and the company was valued at approximately AUD$9 billion on 11 June. The company plans to improve its cashflow over the next three years by cutting discretionary spend on projects and studies, reducing exploration activities, cost-cutting, using the stockpile at Lihir and suspending production of high cost operations.

Newcrest’s country manager, Peter John Aitsi told Business Advantage PNG the company is ‘now working on achieving reliable predictable performance, optimising the plant, reducing activity and simplifying our operations’.

‘We have utilised regular meetings and publications to keep our key stakeholders informed including our employees, our business partners, landowners and the PNG Government,’ he said.

‘Similar steps have already been taken at Hidden Valley in close consultation with our joint venture partner.’

Lihir

A spokeswoman for Newcrest told Business Advantage PNG the focus at Lihir will be on simplifying the operation now that the major plant upgrade is complete.

‘Even though there is to be a cut to the company’s capital expenditure in the fiscal year 2014, funds will be allocated to complete the projects at Lihir, including stripping at Cut Back 9, electrical and control system refurbishment, flotation expansion and NCA tanks rebuild,’ she said.

Hidden Valley

‘At Hidden Valley, an operation review is aimed at simplifying operations, improving efficiency and improving its cost structure.  There is a target of 20-30% cost reduction over the coming 12 months.

‘For example the new primary crusher in front of the overland conveyor has recently been installed which, over the next quarter, is expected to materially reduce the need for expensive trucking of ore to the process plant.  We are also working to improve plant recoveries.

Wafi-Golpu

‘At Wafi-Golpu there is a focus on ensuring alignment with the Government and landowners, optimising and reducing the project capital costs and improving ore body knowledge prior to the project moving to feasibility study.’

Government assistance?

PNG’s Prime Minister Peter O’Neill is reported in The National newspaper as saying his government would consider offering assistance if that was warranted.

‘Newcrest is the largest operator in the nation’s mining sector, and it is vital the company continue making that contribution at Lihir Gold, New Ireland and the Hidden Valley and Wafi projects in Morobe.’

O’Neill said his government would seek a briefing from the management of Newcrest Mining.

Not alone

Newcrest is not alone in seeking to reduce costs and cut back operations, say industry analysts.

‘We certainly expect we will see further write downs from other producers as we … get closer to reporting season. It could be a trend,’ David Lennox, an analyst at Fat Prophets, told Reuters.

‘Over the next three months, we will see a substantial amount of the gold equities sector getting rid of high-cost ounces,’ said Gordon Galt, Principal at Taurus Funds Management Pty Ltd and a former managing director at Newcrest.