Newcrest puts gold mines under review

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Australia’s largest gold miner Newcrest Mining (NCM.AX) is reviewing the future of its high cost mines and has revealed that it cut 150 jobs in the wake of the US$300 an ounce plunge in the gold price.

Since October 2012, the gold price has fallen close to 20%, and hit a two-year low last week of less than $1390 an ounce, but has since recovered slightly to be trading above US$1420 an ounce. In the wake of the plunge, Newcrest shares fell as low as $15.89 last week. Shares are currently trading around $16.60 in early afternoon trade.

Releasing its quarterly production report this morning, Newcrest announced that it had produced 514,000 ounces of gold in the quarter, and 19,000 tonnes of copper. Gold production for this financial year remains at 2.15 million ounces. Total cost of production has increased by 30% over last year, to $1,086 an ounce, driven by the Hidden Valley mine in Papua New Guinea, with total cost of $2,268 per ounce of gold – well above the current price of gold.

Hidden Valley, in which Newcrest has a 50% interest, is now under review, with the miner targeting 20-30% cost reduction over the coming 12 months. Telfer could also be under review, with total cash costs of around $1,573 an ounce.

Going forward, Newcrest is focusing on low cost ore sources, renegotiation of contracts to reduce costs, with an objective for all sites to be cash flow positive.

Gold miners have been under pressure with many seeing double-digit falls in their share prices as the gold price slumped. Earlier today, Evolution Mining (EVN.AX) failed to meet its production targets due to cyclone activity and record rainfall. Cash costs jumped sharply to $918 an ounce in the March quarter. Shares are down 2% to 93.5 cents – less than half their value in October 2012.

Not to be left behind in disappointing shareholders, Silver Lake Resources (SLR.AX) announced earlier this week, it was slashing production to rein in costs and preserve its margins. Production for the full year was downgraded by 25,000 to 55,000 ounces to between 140,000 and 150,000 ounces, as the miner focuses on high-grade zones and ore stockpiles. Total costs are expected to fall by $100 an ounce to around $1,050 per ounce of gold.

Foolish takeaway

Many gold miners have a sad history of over-promising or setting unrealistic production targets and under-delivering. Many shareholders appear to have had enough and are deserting the companies in droves, aided by the falling gold price. Several companies could present opportunities as they get kicked out with the bath water.

The dramatic run-up in the ASX 50 means many of our Aussie “blue chips” are trading for truly eye-popping prices. That’s why savvy investors are now seeking opportunity in smaller companies. Discover two fantastic small-cap opportunities now, in The Motley Fool’s brand-new research report, Two Small Cap Superstars – including names, codes, and all the details. Simply click here to download your FREE copy.

More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Motley Fool writer/analyst Mike King owns shares in Silver Lake.

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