Sandeep Biswas
SYDNEY, Oct 15 (Reuters): 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 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 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 per cent 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 per cent 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.