Newcrest Mining Ltd
ASX:NCM
Earnings Call Analysis
Q4-2023 Analysis
Newcrest Mining Ltd
The FY2023 results for Newcrest Mining were unveiled with an optimistic tone on Friday, 11th of August 2023, in a conference call led by Tom Dixon, the Head of Investor Relations. They presented a detailed review of a 12-month performance span and financial outcomes, foreshadowing healthy profits and ongoing strategic initiatives.
Newcrest reported a 26% reduction in injury rates, underpinning a strong commitment to safety despite two notable incidents that emphasized the importance of continuous improvement in their operations. The company is also fostering an inclusive culture through its Respect@Work program. Enhancement of environmental stability was signified by the introduction of the largest battery electric haul truck fleet at any underground mine, advancing towards both operational efficiencies and sustainability.
With a production of 2.1 million ounces of gold and 133,000 tonnes of copper, the company secured a firm financial standing, generating $400 million in free cash flow and reporting a full-year profit of $778 million. This financial strength is evidenced by a significant reduction in all-in sustaining cost to $1,093 per ounce, yielding a healthy margin per ounce and signifying Newcrest's production efficiency.
Newcrest has communicated its dedication to shareholder value by announcing a final fully franked dividend of $0.55 per share for FY2023. Moreover, anticipating the Newmont transaction completion, Newcrest plans a special franked dividend of US$1.10 per share.
The company marked significant milestones, like the expansion of the East Ridge exploration target at Red Chris, providing long-term prospects. They have also entered a pivotal phase with the planned acquisition of Newcrest by Newmont, which is projected to complete in November, subject to shareholder approval and other conditions. This acquisition is expected to offer Newcrest shareholders value recognition through a diversified portfolio and a structured dividend framework.
Newcrest received $173 million from Lundin Gold and reinvested almost $660 million in major capital projects and exploration, underscoring its strategy to bolster growth and unlock value from its existing assets.
The company enjoys a sound balance sheet with significant financial leeway to manage market fluctuations and support growth plans. With no significant corporate bond repayments due until 2030, they have strategically positioned themselves for forthcoming ventures. Newcrest anticipates producing over 2 million ounces of gold and up to 140,000 tonnes of copper in FY2024, with capital expenditure forecasted to increase marginally due to ongoing development projects.
Despite the pending Newmont transaction, Newcrest remains focused on their core business operations and the safety of their personnel, with unwavering commitment to delivering value for their shareholders through strategic execution.
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Good morning, and welcome to Newcrest Mining's FY2023 Results Conference Call. This is Tom Dixon, Head of Investor Relations. This call is being recorded today, Friday, 11th of August 2023. As usual, a reminder that Newcrest is a U.S. dollar reporting entity and all dollar references in the slides today are to U.S. dollars. Any references to the prior period are to the 12 months ended 30 June 2022.
We have a relatively brief presentation for you today, and there's plenty of time available for Q&A after the formalities. As per the normal process, please limit your questions to two each and then rejoin the queue, if there are more topics you'd like to cover.
I'll now hand over to Sherry for introductions and to then move through the presentation.
Thanks, Tom. Good morning, everyone, and thanks for joining us today. With me on the call is Dan O'Connell, our Chief Financial Officer; Craig Jones, our Chief Operating Officer; and Suresh Vadnagra, our Chief Technical and Projects Officer. Today, I'll provide you with an overview of our performance for the past 12 months, and Dan will then take you through the financial results. And as Tom said, we'll then be happy to take any questions you may have.
Now before we get underway, please note, as usual, the company's important disclaimers on Slides 2 and 3.
Safety and sustainability remain fundamental to the way we do business in Newcrest. Our injury rates decreased by 26% compared to last year. However, we were deeply saddened by the tragic fatality at our Brucejack Mine in October and then a serious injury at Cadia in June. These incidents are felt deeply across our company and are an important reminder for us that all safety must remain our first and fundamental priority. Following extensive safety reviews at all of our sites, we continue to share our learnings across the business as we remain firmly committed to creating a work environment where everyone can go home safe and healthy every day.
And of course, safety at Newcrest is more than just aiming to eliminate incidents and injuries. We've been committed to building an empowered and inclusive culture where everyone can thrive and be at their best. We were also focused on preventing and eliminating sexual assault and sexual harassment from our workplace, and our Respect@Work program is progressing well to ensure everyone across our global workforce feels safe, valued and respected.
On the sustainability front, I'm very pleased to report that we've had multiple initiatives in progress to support our transition to a low-carbon future. At Brucejack, we now have the largest battery electric haul truck fleet of any underground mine with eight trucks in operation delivering productivity and environmental improvements compared to the previous diesel fleet. Not only do the trucks reduce heat, noise and greenhouse gas emissions, we're also seeing increased production with the speed of the trucks improving cycle times.
Activities to procure and onboard trials of high technology readiness electric fleet are also progressing at Cadia and Brucejack along with key power decarbonization studies for Telfer and Lihir. In July, the first renewable power was generated from the Rye Park Wind Farm with early supply commencing under Cadia's Power Purchase Agreement with Tilt Renewables. As we previously announced, Newcrest has a 15-year renewable PPA in place to secure a significant portion of Cadia's future projected energy requirements from 2024.
We continue to partner with local communities as we strive to make a positive sustainable difference for the Newcrest Sustainability Fund contributing to eight major projects and two emergency response projects during the year. Notably, five of these projects run across multiple years, ensuring a long-term commitment to building sustainable outcomes through our fund.
Now let me take you through some of the key achievements for FY2023. Throughout the year, we continued to deliver on our strategy, reaching several major milestones across our pipeline of high-quality gold and copper assets. Earlier this year, our Board approved the Cadia PC1-2 and Lihir Phase 14A Feasibility Studies to execution.
In March, we significantly expanded the exploration target at East Ridge, and in April, we reached a pivotal milestone at Wafi-Golpu with the signing of the Framework Memorandum of Understanding. Brucejack also continued to successfully advance the three-phase transformation program during the year with a range of initiatives well progressed. And of course, we further extended the life of Telfer as we continue to progress several potential options to expand the resources base in the open pits and the underground to unlock additional value.
On the production front, we produced 2.1 million ounces of gold and 133,000 tonnes of copper in FY2023. Cadia continued to deliver very attractive cash margins for the business, and ore mined at Lihir increased by 57%, reflecting the progression of stripping into higher grade ore. We also released our annual mineral resource and ore reserve statement today. This includes initial Newcrest estimates for Brucejack, which has driven an increase in our group gold resource and reserve estimates on the prior year.
Overall, we remain in excellent financial shape. We generated just over $400 million in free cash flow, and our full-year profit was $778 million. Our group all-in sustaining cost of $1,093 per ounce delivered a healthy margin of $680 per ounce and our balance sheet remains strong.
Now as I'm sure you all know, we've also reached an agreement with Newmont to proceed with the proposal for Newmont to acquire 100% of the issued shares in Newcrest. The transaction is expected to establish a clear global leader in gold production with a growing exposure to copper. Our Board is unanimously recommending the proposal in the absence of a superior proposal, and subject to the independent expert concluding and continuing to conclude that the transaction is in the best interest of shareholders, and we expect the transaction to close in November.
And finally, we're very pleased to announce a final fully franked dividend of $0.20 per share today, exceeding the minimum payout targeted by our dividend policy and bringing our total dividends for the 2023 financial year to $0.55 per share. This is equal to the highest total annual dividend Newcrest has ever determined reflecting our ongoing commitment to providing strong shareholder returns.
Moving on to our operations. Cadia delivered another very strong performance in FY2023 driven by higher gold and copper production with the planned replacement and upgrade of the Cadia SAG mill motor completed last year. We achieved several milestones at Cadia during the year, which I will touch on shortly, and we continue to work openly and transparently with the EPA and local community to address some issues related to management of dust emissions. Protecting the environment and the health and safety of the community is at the forefront of how we operate. We've been a local community member in the Cadia region for a very long time, and we remain firmly committed to meeting our obligations in a way that is aligned with our values.
While Lihir's performance in FY2023 was weaker than we had expected, it was a tremendous achievement by our team to record zero injuries during third and fourth quarters, with Q3 being the first quarter that Lihir has achieved zero recordable injuries in more than 10 years.
Red Chris also achieved its lowest annual injury rates on record, reflecting Newcrest's ongoing transformation of safety culture across the site. We continue to progress several optimization opportunities through the Red Chris Block Cave feasibility study which we expect to complete later this calendar year. The exploration decline is also progressing well, helping us to further explore the Red Chris deposit from underground.
The Brucejack transformation program continues to advance with over 50% of the ongoing synergy benefits delivered in FY2023, as well as impressive preliminary results on bench scale ore sourcing trials.
We were also delighted to further extend the life of Telfer into early FY2025. The site continues to review options to expand the resource base in the open pits and underground to unlock further additional value.
Our equity interest in Lundin Gold continues to deliver significant value as well. Following the early repayment from Lundin Gold for the gold prepaid credit facility in January, Newcrest has received $480 million of cash flows from the FDN financing facilities.
On the production front, Fruta del Norte had another impressive year and we were very pleased to receive $30 million in dividend from Lundin Gold in FY2023. It was also pleasing to see that Lundin Gold declared another quarterly dividend yesterday of US$0.10 per share.
And finally, our exploration team continues to create significant value for Newcrest. The excellent results we're seeing from our Brucejack exploration program are very encouraging, and our exploration success at Red Chris continues to support our view as significant resource growth potential.
FY2023 has really been a transformational year for Newcrest. Our growth strategy continued to advance with several significant milestones achieved across our pipeline of gold and copper assets. At Cadia, we successfully completed the two-stage plant expansion and PC2-3 delivered first ore to the mill in March. This was a significant achievement for Cadia's next panel cave with activity now focused on mine development. Cadia also marks a key strategic milestone in November with the PC1-2 feasibility study approved execution. PC1-2 is the next panel cave at Cadia after PC2-3 and its development is expected to recover around 20% of Cadia's significant reserves.
At Lihir, we progressed the Phase 14A cutback to execution with high-grade ore expected to be delivered into the mine plan from FY2024 before we move into the higher grades within the Kapit orebody. The Phase 14A study also outlines the upside potential we see at Lihir. The application of steep wall technologies together with a lower cost and simpler seepage barrier design, have the potential to enable access to additional high-grade zones outside of the current ore reserve and extend Lihir's elevated production profile beyond FY2031.
In March, we substantially increased our exploration target at East Ridge for Red Chris. East Ridge represents a unique opportunity at Red Chris, its scale and proximity to the macro blocks currently in feasibility study highlight a potentially meaningful role to play in the long-term future of Red Chris. East Ridge mineralization could provide future mining optionality to reprioritize our block caving sequencing and target these higher-grade tons earlier. We're also looking at the potential to establish East Ridge as a second production front in parallel to the main underground development, which could lead to higher production rates in the future.
And in April, we signed the Wafi-Golpu framework MOU marking a key milestone towards the development of this premier copper gold deposit. The MOU gives us confidence that the permitting for Wafi-Golpu will progress constructively and in a timely manner to the grant of a special mining lease. And following which, we will update the 2018 feasibility study and commence engineering towards development.
In May, as you will know, we reached an agreement for Newmont to acquire 100% of the issued shares in Newcrest by way of an Australian scheme of arrangement. As I've said, the transaction will bring forward significant value to Newcrest shareholders through the recognition of our outstanding portfolio of long-life assets, our material and increasing exposure to copper and our well-established organic growth pipeline. The combined company will set a new benchmark in gold production with a diversified portfolio at different stages of the production and development cycle, as well as increased operational flexibility and additional financial scale compared to Newcrest on a stand-alone basis. Newcrest shareholders will also have access to Newmont's structured dividend framework.
The transaction remains subject to a number of conditions, including approval of Newcrest shareholders at a Scheme Meeting, which we expect to hold in October. As I've mentioned previously, our Board unanimously recommends that shareholders vote in favor of the transaction in the absence of a superior proposal and the independent expert report concluding and continuing to conclude that the transaction is in the best interest of our shareholders. We do expect the transaction to be implemented in November, and we will, of course, continue to keep the market informed of any material updates in line with our continuous disclosure obligations.
I'm incredibly proud of the successful business our people have created over the last 30 years. The significant premium offered by Newmont to acquire our company is testament to the hard work and dedication of our global workforce over that time.
I'll now pass over to Dan, who will run you through Newcrest's financial performance for the year.
Thanks, Sherry, and good morning, everyone. It's great to have another good set of financial results to talk you through. In the current period, we delivered an underlying profit of $778 million, free cash flow of $404 million and an all-in sustaining cost of $1,093 per ounce. The result is notable given we were faced with unprecedented weather conditions at Lihir across the financial year, the suspension of operations at Brucejack following the tragic fatality in October and the temporary shutdown of our processing plant at Telfer with Cyclone Aila in April. Despite the headwinds, our balance sheet remains in excellent shape, sitting comfortably within our financial policy targets.
We received $173 million from Lundin Gold in January for the early prepayment of the gold prepaid credit facility and continued to invest in our growth strategy with almost $660 million spent across a range of major capital projects and exploration activities.
As Sherry highlighted earlier, we are very pleased to announce a fully franked dividend of $0.20 per share bringing our total dividends for the 2023 financial year to $0.55, demonstrating our commitment to strong shareholder returns. In addition, Newcrest expects to pay a franked special dividend of US$1.10 per share prior to the implementation of the Newmont transaction.
Moving on to Slide 12. Newcrest continues to maintain its very strong balance sheet, and our debt maturity profile is well managed. Our balance sheet strength enables us to be resilient through market volatility and provides considerable flexibility to fund our exciting growth pipeline. Our next corporate bond repayment is not due until 2030, and we have a low weighted average bond coupon rate of only 4.3%.
Newcrest is in a strong financial position. As highlighted on this slide, we remain well within our financial policy targets with a leverage ratio of 0.7x, a gearing ratio of 11.1% and coverage of $2.3 billion. Importantly, we continue to maintain our investment-grade credit rating, which is a key external measure of the financial strength of the company.
I'm pleased to present our group guidance for FY2024. We have given consideration to the binding agreement entered into with Newmont and the upcoming scheme vote which we are expecting in October and determine that guidance for FY2024 will be provided at a group level. As highlighted in this slide, Newcrest is expecting to produce over 2 million ounces of gold and between 120,000 and 140,000 tonnes of copper. We anticipate continuing our low cost production in FY2024 and despite an increase in the dollar million all-in sustaining cost compared to last year. Total capital expenditure is expected to be slightly higher than FY2023 as we continue to progress our stripping programs at Lihir, Red Chris and Telfer; as well as the ongoing development of PC2-3 and PC1-2 at Cadia Phase 14A development at Lihir and advanced development at Red Chris.
Thanks for your time, and now I'll pass you back to Sherry.
Thanks, Dan. So in closing, I'd like to again thank our wonderful team of people for their ongoing contribution to Newcrest's success over many years. I'm so proud of our accomplishments and achievements in building a world-class business that will continue to prosper for many years to come as part of the combined group with Newmont.
As the transaction moves through regulatory approvals and shareholder votes later this year, I also want to reiterate that we remain completely focused on our business and on the safety and well-being of our people. Our priorities remain very clear, and we'll continue to execute our strategy to create value for our shareholders.
So thank you for listening. And with that, we're happy to take any questions. And I'll do one quick test because we have myself and Dan and Suresh in the room, but we have Craig on the line actually calling in from one of our assets in WA. Craig, are you there? And can you hear us?
Yes, I can hear you. Thanks, Sherry. And good morning, everyone.
Okay. Excellent. Well, thank you, operator. We'll open to questions now.
Thank you. [Operator Instructions] Your first question comes from Levi from UBS. Please go ahead.
Good morning everyone, and thank you. Thank you for your time. Just a mechanical question. So implementation in November, all things going well. So just confirming the dividend will be fully franked. And do we assume that the Newmont CDIs would be trading on the ASX at that time immediately after?
I'll take that one. So at this stage, we expect it to be a franked special dividend. Obviously, that's going to be subject to the timing of the transaction, business performance, foreign exchange movements and finalization of various tax matters. But at this stage, we expect it to be franked. So that's to answer the first question. And I think the second question was around the timing of the dividend. I can confirm we expect that to be precompletion but paid after the shareholder vote.
Okay. Thank you. And just an operational question. So FY2024 guidance was on a group level. I didn't miss that you've broken it down into mine-by-mine for Cadia and Lihir.
I'll take that one. We have not broken it down by assets, as I've mentioned, just in light of the pending transaction and the fairly near-term timetable for that. What we have given you is just total production for gold and for copper. We've given you operating costs and the various elements of capital. And we've also given you a couple of other line items so that you can appropriately calculate a P&L in your models.
Thank you. Thanks, Sherry.
Thank you. Your next question comes from Daniel from Barrenjoey. Please go ahead.
Hi, Sherry and team, just following up on the decision on the guidance, not to provide asset guidance. Shareholders will still later this year, have to make a decision regarding whether they want the Newmont proposal to proceed or not. And doesn't this decision provide less transparency on what an independent Newcrest investment case might look like?
Yes, Daniel, it's certainly a question that we've considered carefully. Interestingly enough, and you might be aware of this, but for everyone's benefit, when you look at transactions in the U.S. of this nature, it's actually quite uncommon for the target company to provide guidance at all. That we felt was, in our case, probably not the best to go, which is why we chose to provide group level guidance, and we chose to provide a number of line items to help you appropriately model P&L. You can also, of course, look to the qualitative description of activities that we're undertaking in this year and how we talk about each one of the assets in the more detailed sections of the financials.
Okay. Thank you. And is there anything you and the management team are doing to run this differently in light of the Newmont bid? I.e. are there any investment decisions that might have naturally been coming up this fiscal year that you've decided to defer or consult with Newmont?
Yes. So we are continuing to run BAU as we would be required to as long as we're listed as a separate company. We went through a full budgeting process, which was supported by management and Board in the last couple of months here, and that's reflected in the guidance that we've put out, and we'll continue to run independently with our own decision-making until such date that there's a day one of the transaction.
I think it's on public record that the one key decision that we are targeting before the end of the calendar year, is, of course, the Red Chris feasibility study decision. So we will continue to work at pace towards that decision in that period, and we've given you the dates that we're targeting for the transaction completion.
And will that Red Chris feasibility study come pre transaction, do you think, or potentially post?
That's to be determined as we work through. So we've given the range around the end of the calendar year. So we'll have to see how that plays out in the coming months. Still quite a number of weeks and days between now and then to see what the sequencing of that is.
Okay. Thank you very much.
Thank you. [Operator Instructions] Your next question comes from Alex from Citi. Please go ahead.
Hi, Sherry and team. At Cadia will the mining rates be returning to normal levels following the installation of the remaining dust filters in the December quarter? Is there any risk in depleting the surface stockpiles at this time? And when were these stockpiles previously planned to be milled? Thanks.
Okay. Thanks, Alex. What I can confirm is that when you look at the group level guidance that we've put out, it includes our best projection of how quickly we'll be able to return to full production. We've talked about the fact that we've already put four additional scrubbers in place. We're in the process of installing the fifth, and we have two more coming in the very near term here. And we'll continue to ramp up while staying in compliance with all of the regulations during that period. We feel like that the stockpiles that we have in place today are adequate to support that. And again, that's reflected in the group guidance that we've put out.
Okay. Thanks.
Thank you. Your next question comes from Matthew from MST Financial. Please go ahead.
Sure. Thanks. Hello, Sherry and team. Just wondering whether there would be any weighting on the capital spend that you've guided to in FY2024. I guess, particularly in relation to sustaining and exploration capital. Anything to be considered in terms of first half or second half weighting on the timing there? I guess following on from prior questions around, I guess, how you're considering investment spend prior to closing the implementation of the scheme.
I understand. I'm so sorry, Matthew, I understand your question well, but we won't be able to give any additional granularity on the phasing. As you can imagine, particularly in these CapEx things, it can move around quite significantly even from month to month depending on what's being delivered, how services are being phased, et cetera. So I won't be able to give any phasing on that.
Okay. No problem. Maybe secondly, whether you'd be able to comment and give a little bit more color on operations at Lihir currently. Obviously, you gave some detail around some of the challenges during the quarter around weather impacts and access to the pit. Obviously, we can see in the numbers that ex pit material movements have probably been running maybe a little bit under what you might have expected in that first three years of the life of mine plan. So can you just talk to how the recovery is going there and what you expect to achieve in FY2024 to get that back on track? Thanks.
I might allow Craig, the opportunity to speak on that one. Craig, if you're still on the line, around specifically where are we in the first couple of months of the year and what are we looking ahead for Lihir.
And just sort of to provide some context around Lihir, we've been working on our improvement projects for a number of years now, particularly in the pit and around the reliability of the mill, and we are seeing the benefits of that pay off. And if you look at the first half of last year, we saw some much improved ex pit mining rates. Unfortunately, the second half of the year, the extreme rain did hamper efforts in terms of those improvements, but we're still well and truly on track to provide the increase in mining rates that we've been looking towards for some time. And we're also seeing some good improvement in terms of reliability in the milling circuit as well. So the underlying improvement is still on track.
Sure, thanks, Craig. Maybe while I've got you, obviously, heavy rainfall events and geotechnical stability tend not to go hand in hand. Can you maybe comment on how that's affecting your considerations around the steepening wall angle in P-14A and whether you've had to make any changes there? Thanks.
The 14A projects are actually progressing quite well. So we're seeing some good progress there. We're not seeing any impacts from heavy rain or anything like that, the design and the grand support is standing up to scrutiny, so we're quite happy with the progress there.
Okay. Thanks very much Craig, and thanks Sherry for taking my questions.
Thanks.
Thank you. [Operator Instructions] Your next question comes from Mitch from Jefferies. Please go ahead.
Good morning, Sherry and team. Just one quick question. I know that Newmont has called out you've received PNG Competition Commission approval. Just wondering if there are any other outstanding regulatory approvals required before the deal would potentially go through.
Thanks for that Mitch. There are a number of approvals required. Just to maybe reiterate, for those that might not be fully aware, the ones that we've received to date, as you say, we've gotten the PNG approval, we've gotten clearance from the Canadian Competition Bureau. We also have Newmont confirmation that the premerger filings under the Hart-Scott-Rodino Act in the U.S. is not required, won't run through the complete list of what's still outstanding. I think the key one that is more material is the FIRB approval in Australia. We've also got a few other countries that require approvals and they're all well underway. At this point, we're not expecting any material concerns with any of those approvals, and that's all been incorporated into the October shareholder vote and November transaction completion dates that we've put out there.
Okay. Thank you for that color.
Thank you. As there are no further questions at this time, I'll now hand back to Sherry for any closing remarks.
Okay. Thank you very much, everyone. Again, I'll just reiterate how proud I am of the team and the wonderful company that we've built over many years and our continued commitment to run things smoothly until as and when we merge together with Newmont, if this transaction completes as planned. So thanking you for calling in today. Wishing you a great day and a great weekend.
That does conclude our conference for today. Thank you for participating. You may now disconnect.