As widely tipped Newcrest has approved the $685 million expansion of its huge and very profitable gold mine, the Cadia mine in central-western New South Wales.
Newcrest told the ASX on Tuesday its board had approved the plan to increase plant capacity to 33 million tonnes a year, the first stage of a two-phase program to boost the mine’s production from the 2022-23 financial year.
The decision was made easier by a 21% surge in gold prices in the past year to more than $US1,500 an ounce last week
(The gold price assumed in the study for the expansion is $US1,250 an ounce, so there is considerable headway there)
The second stage, which is the subject of a continuing feasibility study, would lift output to 35 million tonnes a year at a cost of another $180 million.
Newcrest CEO Sandeep Biswas said the expansion plans would add 1.8 million ounces of gold output and 67,000 tonnes of copper, and increase free cash flow by $800 million over the life of the mine.
“The capital investment has an estimated 21.5 percent rate of return and ensures Cadia remains a tier-one asset for many years to come,” Mr. Biswas said in Tuesday’s statement.
Cadia generated $1.42 billion in earnings in the 12 months to June 30.
The company produced 2.49 million ounces of gold during the financial year. Of that 912,777 ounces came from Cadia as it recovered from the problems caused by a tailings dam and mine workings collapse the year before. Cadia produced 90,841 tonnes of copper as well.
Cadia, Newcrest’s most profitable asset, suffered disruption in March 2018 when a wall on the mine’s northern tailings dam partially collapsed, causing the movement of more than 1.3 million cubic metres of mining waste material. The incident led to the temporary suspension of mining and processing at the mine.
That was after an earthquake damaged part of the mine the year before.
Newcrest eased yesterday to end the dat at $33.33 as investors had already factored in the greenlight.