IN June 2012, Newcrest Mining chief executive Greg Robinson warned that cost pressures, coupled with declining gold grades in Australia, could push miners away from Australia and towards emerging regions including Russia, Latin America and West Africa.
“Labour costs are very, very high [and] the currency is high,” he said at the annual Stockbrokers Conference in Melbourne.
“It is very difficult within this cost cycle to allocate major expansionary capital…the number of projects that will be delayed will increase,” he said. In April 2012, Newcrest released its annual strategy review, which focussed on pressures being felt across a number of its gold operations. The review stated that the resources sector was struggling with continuing high-cost inflation in relation to energy, labour, contractors and suppliers, as well as declining productivity. It also stated that the company was simultaneously undertaking two enormous and complex capital projects at two of its largest operational sites – Cadia Valley and Lihir – which had led to larger-than-expected fluctuations in production.
Newcrest reported that these impacts had become more significant during the past 12 months, peaking in the March quarter 2012 when the resulting short-term production performance was deemed unacceptable by the company’s board and management. In response, Newcrest significantly intensified its focus on operating excellence plus cost and capital control, and reassessed its short-term production guidance as it aimed for a 5 to 10 per cent increase in production during the next five years, from its current 2.3 million ounces per annum.
Newcrest operates mines in four countries and is concentrating on two major growth projects: the Cadia East underground mine in Central Western NSW – which will become Australia’s largest underground mine – and the Lihir million ounce plant upgrade (MOPU) project in Papua New Guinea.
The company is also aiming to have the spectacular discovery at the Wafi-Golpu copper-gold project in PNG in production by the end of the decade.
Newcrest is focussed on large assets, with four of its six assets boasting annual gold production of more than 400,000oz.
Its production for the June 2012 quarter was 587,310oz of gold and 20,544t of copper at a cash cost of $604 per ounce, with major project expansions at Lihir and Cadia Valley remaining on schedule. Exploration continued with 46 rigs in operation across a portfolio of near-mine and greenfield projects in Australia, PNG, Indonesia and Cote d’Ivoire. Newcrest’s full-year 2012 gold production of 2.29moz was in line with the updated guidance range provided to the market in April 2012.
The Cadia Valley operations, 250km west of Sydney, comprise: the Cadia Hill open pit and Ridgeway underground mines; ore processing facilities with the capacity to treat more than 24 million tonnes per annum; and the $1.9 billion Cadia East project, which incorporates an underground mine and the expansion of the ore processing capabilities to 26mtpa.
As of December 31, 2011, Cadia East boasted resources of 33.1moz of gold and 6.58mt of copper, and reserves of 22.2moz of gold and 3.67mt of copper. First commercial production is expected in the December 2012 quarter; the project is now more than 80 per cent complete.
June quarter commissioning milestones included the flotation plant, regrind vertimill and high-pressure grinding roll circuit.
While Cadia East gold production continued in small volumes during the quarter, Newcrest reported that capital costs to first commercial production were running about 10 per cent higher than the $1.9 billion budget due to reduced production from the block cave prior to commissioning. Underground mine development during the June quarter concentrated on infrastructure set up and the continued establishment of Panel Cave 1. The decline towards the deeper Panel Cave 2 also continued during the quarter, with ventilation connections and the access to the undercut and extraction levels completed.
Construction of the final conveyor transfer station has begun following excavation of the chamber in the June quarter. To date, more than 600,000t of Cadia East ore has been treated through the processing plant.
During the quarter, Cadia Valley produced 117,849oz of gold and 12,162t of copper at a cash cost of $412/oz, which compared favourably with the March quarter results of 86,865oz of gold and 10,123t of copper at a cash cost of $714/ oz. Gold production increased by 36 per cent and copper by 20 per cent, and mill performance improved significantly due to increased stability and reliability. Mill feed grades increased due to higher volumes of ore from both the Cadia Hill
open pit and the Ridgeway underground mines. Mining of cutback three in the Cadia Hill open pit was completed at the end of June, with the pit now placed
on care and maintenance. Ore mined from Ridgeway increased by 10 per cent on the previous quarter, reflecting improvements in the underground fleet and plant productivity.
Lihir Newcrest’s wholly-owned Lihir operation on Niolam Island, 900km north of Port Moresby, started production in 1997.
Since then, the mine has produced more than 7moz of gold.
With 28.8moz in reserves and 43moz in measured and indicated resources, the mine is a single ore body with three linked open pits that will be operated until about
2023. The planned final dimensions of the pit are about 2km by 1.4km, with a final depth of about 200m below sea level.
The Lihir process plant is capable of treating more than 6mtpa of ore and has the capacity to produce in excess of 800,000ozpa of gold at a grade of 2.4 grams per tonne.
In the June quarter, Lihir produced 163,058oz of gold at a cash cost of $571/ oz, compared with March 2012 quarter production of 149,533oz of gold at a cash cost of $529/oz. Gold production was 9 per cent higher and open pit material mined in the quarter was 10 per cent higher than in the previous quarter. In 2008, a major expansion to the Lihir process plant was approved by the Newcrest board in order to increase annual output capacity to about 1moz. The US$1.3 billion project, which includes installing an additional autoclave to the process plant and doubling the capacity of the three existing autoclaves, will see annual throughput increase to between 11mt and 12mt: lifting gold production by up to 240,000ozpa and increasing production to 1.4mozpa in five years.
Construction started in 2008 and the infrastructure is expected to be fully operational in the December 2012 quarter.
Newcrest has endured a frustrating year as repeated problems at its Lihir MOPU project have forced the company to downgrade its production guidance several times. It reported that there were significant aspects of the project requiring installation before commissioning in December, with major features of the upgrade still to be trialled at Lihir.
In June, the company reported that the MOPU project had progressed to schedule and on budget and was about 91 per cent complete, with commissioning activities
about 51 per cent complete. Completion of construction and the commencement of commissioning of the autoclave would be the key activities for the September 2012 quarter, and the project remained on track to commence ramp up of production in the December 2012 quarter.
During the June quarter, drilling designed to increase the open pit gold resources continued to deliver strong results from the Kapit North East target area. Significant results included 262m grading 4.1g/t of gold from 74m and 218m grading 3.6g/t of gold from 56m, confirming continuity of the high-grade mineralisation well outside of the present resource shell. The mineralisation defined by current drilling extends across a 750m by 900m area and remains open to the north and to the east, with resource upgrades expected in the coming months.
The wholly-owned and redeveloped Telfer operation was officially opened by Newcrest in July 2005. In the Paterson Province of WA, about 450km east southeast of Port Hedland, the operation comprises one open pit and one underground mine. The Telfer open pit mine consists of two pits, Main Dome and West Dome, with mining currently contained to the Main Dome.
The underground Telfer mine is beneath the Main Dome pit. Newcrest predicted that the underground mine would be operational until 2017 and the open pits
In the June quarter, Telfer produced 131,775oz of gold and 8382t of copper at a cash cost of $849/oz, which was slightly lower than its performance in the previous
month. Gold production was 3 per cent lower due to slightly less milled tonnes and a reduced gold recovery. Open pit ore continued to be sourced from the West
Dome and Main Dome pits. Underground mining continues on the 4550 and 4525 levels – the fifth and sixth levels beneath the undercut – with development on the
4525 and 4500 levels ongoing.
Surface drilling is now focussed on testing the West Dome Deeps high-grade gold target and expanding the lower strip ratio gold resources at West Dome.
The Vertical Stockwork Corridor infill program has been completed in the underground mine, with the project now subject to a pre-feasibility study.
In March this year, Newcrest warned that recent changes to Indonesia’s mining laws, designed to grab a larger share of that country’s mineral wealth from overseas mining companies, could see its Gosowong mine contract “adjusted”.
The Indonesian Government has voiced its intention to enforce a 2009 dictum regarding local ownership of resource projects by lifting the required local ownership ratio from 20 per cent to 51 per cent within the first 10 years of each mine commencing production.
In response, Newcrest acknowledged that the final impacts on the company of foreign ownership rules were subject to ongoing negotiations with the Indonesian
Newcrest has an 82.5 per cent stake inthe high-grade Gosowong operation (the remainder is owned by the Indonesian government) which incorporates the Gosowong open pit plus the Toguraci and Kencana underground mines. The combined resources total 4.8mt grading 16g/t of gold for 2.5moz of gold, with
reserves of 5.2mt grading 13g/t for 2.1moz of gold.
Kencana is one of the highest-grade underground gold mines in the world. The third mine to be developed by Newcrest at the Gosowong site, it is 1km south of the
original Gosowong pit. Recent exploration results highlighted the potential for an extension of mine life, in addition to identifying other ore bodies within the Gosowong Province.
In the June 2012 quarter, Gosowong produced 133,233oz of gold at a cash cost of $380/oz, compared with the March quarter result of 118,853oz of gold at $367/
oz. Gold production was 12 per cent higher than in the previous quarter due to record mill output. Mining continued in the K1, K2 and K Link ore bodies at Kencana
and also in the Toguraci underground mine. Waste movement continued on the Gosowong open pit during the quarter, with small volumes of ore mined.
At Kencana, underground drilling continued to expand the K1 North and K2 mineralisation beyond present resources, with significant results including 10m
grading 5.2g/t of gold from 74m. Drilling north of Toguraci has extended the existing resource boundary.
Remote area exploration recommenced at the Matat and Batuapi prospects, with initial drilling confirming the presence of an epithermal system about 2km north of
the known Gosowong goldfield. Morobe Mining Joint Ventures Morobe Mining Joint Ventures (MMJV) is a 50-50 partnership between South Africa’s Harmony Gold and Newcrest, established in August 2008 for the purpose of exploring, developing and operating mines in the Morobe Province of PNG.
MMJV incorporates all current and future mining, project and exploration activities by the two parent companies in the Morobe Province, including the Hidden Valley gold mine and the significant resource discovery at Wafi-Golpu.
The Wafi-Golpu project, about 60km southwest of the town of Lae, is a major MMJV exploration project. In July 2011,an updated measured, indicated and
inferred resource estimate of about 1.01 billion tonnes containing 26.6moz of gold and 9mt of copper was reported for Wafi-Golpu. This comprised an extensive
gold-only surface mineralisation at Wafi of relatively high grade and deeper porphyry-related copper and gold mineralisation at Golpu and Nambonga.
In March 2011, drilling supported revision of the exploration target for the project area to more than 40moz of gold and 15mt of copper, based on a tonnage rate of between 1200mt and 1700mt. Deep drilling undertaken and reported in recent quarters continues to demonstrate that the deposit may be significantly larger than the reported resource, and results show stronglymineralised porphyry at depth and to the north. An announcement of the resulting new reserves for the project is likely to be made in the September 2012 quarter.
Recent work conducted by the JV has included significant amounts of drilling, ongoing regional exploration, and detailed concept studies on deposit knowledge and possible development scenarios.
The JV reported that it is aiming to progress from pre-feasibility to feasibility studies, with the pre-feasibility study due to be finalised early in the September 2012
quarter. The JV parties have commenced a review of the study findings to date. Exploration at Golpu has intersected broad, strongly-mineralised zones including drill hole WR433 – which intersected 440m grading 1.22 per cent copper and 0.53 per cent gold from 346m – extending the higher grademineralisation 80m north of previous drilling. The presence of a new gold zone, the Northern Zone, has been confirmed west of Golpu. This mineralisation has been identified across 200m of and remains open in all directions.
The Northern Zone demonstrates the potential of the Wafi-Golpu complex for new gold discoveries and follow-up drilling has been planned. Bonikro
Owned 89.9 per cent by Newcrest and 10 per cent by the Cote d’Ivoire Government, Bonikro sits in the central-southern section of the West African nation, about
240km northwest of the capital of Abidjan. In September 2010, Newcrest assumed ownership of the Bonikro operation as part of its merger with Lihir Gold. The
deposit has an average grade of less than 2 per cent gold, and employs a traditional open pit mining method comprising drilling, blasting, loading and hauling.
The operation has resources of 67mt grading 1.3g/t of gold for 2.9moz of gold and reserves of 27mt grading 1.3g/t of gold for 1.1moz of gold. Production was 150,023oz of gold for the first full year, with subsequent annual gold production steady at 120,000oz.
Bonikro produced 20,046oz of gold at a cash cost of $817/oz during the June quarter. Reduced access to open pit high-grade areas due to the early start of the wet season in June resulted in lower feed grades, while a planned shutdown during the quarter resulted in lower mill throughput.
In June this year, Newcrest reported that it had yet to make a decision on whether to proceed with the expansion of Bonikro, despite reports that the expansion was under way. A statement from the Cote d’Ivoire mining department suggested Newcrest had decided to triple its production by 2017; however, Newcrest stated that while it was continuing to evaluate the possible expansion of the processing mill at Bonikro, the study was not complete and no decision would be made until it was.
Meanwhile, a number of significant mineralised zones were drilled at Bonikro, with results including 19m grading 6.6g/t gold from 116m and 25m grading 5.7g/t gold from 4m. These results confirmed and upgraded the inferred resource and indicated strong potential for a pit expansion. The regional exploration program also continued, with extensive aircore and diamond drilling at the Bouafle, Mankono and Timbe/Bouake prospects.
Construction of the Hidden Valley open pit gold and silver mine began in 2007, with the bulk of the work completed towards mid 2009. The first gold pour at
Hidden Valley was in June 2009, and the project is now fully operational. Working at full design capacity, Hidden Valley – which has a 14-year mine life – will process about 4.7mtpa of ore from two open pits 5km apart.
Following the high rainfall experienced in January and February this year, mining rates at Hidden Valley remained constrained by groundwater. Its June
quarter 2012 production was 21,349oz of gold and 191,594oz of silver at a cash cost of $1562/oz. Unit cash costs remained high, with trucking of ore to the mill adding to expenditure. This trucking of ore is expected to be reduced by the March quarter 2013.