Newcrest greenlights first expansion phase of Cadia gold mine

The Cadia Valley operation in New South Wales was 2018’s top producing mine, dethroning Newmont’s Boddington operation in WA. (Image courtesy of Newcrest Mining)

Australia’s Newcrest Mining Ltd, the country’s biggest gold producer, said on Tuesday it will go ahead with a $685 million first-stage expansion of its flagship Cadia mine in New South Wales.

Newcrest said board members had approved the initial leg of a two-stage expansion that it expects to boost production from the 2023 financial year.

The full expansion plan will add 1.8 million ounces of gold output and 67,000 tonnes of copper over the life of the mine

The first stage will increase plant capacity to 33 million tonnes per annum (mtpa), Newcrest said. A second stage, still in feasibility, would boost it to to 35 mtpa and improve recoveries for a further $180 million.

The full expansion plan will add 1.8 million ounces of gold output and 67,000 tonnes of copper over the life of the mine, with an estimated $800 million increase in projected free cash flow, compared to a 2018 study by Newcrest.

“The capital investment has an estimated 21.5% rate of return and ensures Cadia remains a Tier One asset for many years to come,” Newcrest Chief Executive Officer Sandeep Biswas said in a statement.

The projected returns are slightly better than the output Newcrest had predicted in a pre-feasibility study released last year.

“Incrementally it’s positive,” said Simon Mawhinney, chief investment officer at top shareholder Allan Gray in Sydney, noting a greater than 20% internal rate of return.

“Given how low their gold price assumption is and arguably their copper price assumption is, it seems like a reasonable initiative and it’s slightly better than the previous outcome,” he said.

Newcrest assumes a gold price of $1,250 and a copper price of $3 a pound ($6,600 a tonne). Gold traded last at $1,492 an ounce. LME copper traded at $5820 a tonne.

Newcrest produced 2.49 million ounces of gold for the financial year ended in June and 105,900 tonnes of copper.

($1 = 1.4760 Australian dollars)

(By Devika Syamnath and Melanie Burton; Editing by Sandra Maler and Jane Wardell)

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