Tanami land grab
Newcrest Mining (ASX:NCM) has been busy in the past twelve-months in tying up project and land deals with junior gold explorers. This rise in activity follows an extended period when the company was addressing operational issues across its own portfolio of mines. A land grab in the Tanami region of Australia is a joint venture (JV) that certainly is a standout. Exploration tenements have now been granted over the Tanami ground. The following figure shows the location of the ground now under exploration license (iridescent green regions):
Source: encounter Resources
The JV consists of five individual projects in Selby, Watts, Lewis, Phillipson and Aileron sites that cover a total area of approximately 4,400 square kilometres. The JV is on a 50:50 basis.
The individual JVs over the five projects have similar controlling conditions that are, in our view, not onerous on the company. Exploration activities per the JV have returned gold showings with Selby, Watts and Lewis being the standouts.
The Hutch’s Find hosted in the Watts JV tenement is of considerable interest, with the prospect shown in the following figure with gold shows (ppm – parts per million, ppb – parts per billion, Au – gold, As – arsenic):
Source: Encounter Resources
Drill at Hutch’s Find has returned multiple intersections: 19 metres graded at 2.3 grams per tonne (g/t) gold from 98 metres, 10 metres graded at 5.4g/t gold, 123 metres with a sweet zone of 0.5 of a metre graded at 17.2g/t gold from 164.3 metres. This reading is a significant find and likely warranted the company’s interest in the region.
The Selby JV from a 2010 drill programme returned 7.2 metres graded at 3.1g/t gold from 95 metres. Like the Watts JV, this is a significant reading. Further follow-up activities will be warranted to confirm the initial intersection.
We expect the company and its JV partner will focus on the Watts JV and especially the Hutch’s Find prospect.
We believe the Tanami JV land grab will when full exploration gets under will service to waylay our concerns over future growth, albeit someway off. The JV partners are planning work programmes across the JV tenements.
The Cadi expansion has been approved to advance to the feasibility study stage, with completion expected in the first half 2020. The expansion carries a capital expenditure estimate of US$540 million. The expansion when completed will increase capacity at Cadia to 35 million tonnes of ore per annum. The following figure shows a schematic of the Cadia expansion overlaying the existing plant:
Source: Newcrest Mining (ASX:NCM)
Cadia has a mine life of 45 years and will produce 15.5 million ounces of gold and 3.5 million tonnes of copper over the mine life. The Cadia operation will be a low grade (0.49g/t gold) high tonnage mine. Life-of-mine (LOM) gold production equates at an average annual production rate of 15,471 ounces and for copper 78,000 tonnes.
Operating costs in the pre-feasibility study are expected to be US$30 per ounce of gold sold for all-in sustaining costs over the life of the mine. We expect this metric is the key driver in the company advancing the Cadia expansion to the next study stage.
From a shorter-term perspective, the picture is more bearish. Prices have fallen below dynamic support at the 200-day (green line) and 50 day (red line) moving averages. Support at $19.26 has held, but a move back above the 50-day at $19.86 is needed to improve the outlook. Positively, this is relatively close at hand.
We have for some time had concerns over the growth profile of Newcrest Mining, and although in its very early stages the Tanami could play a major role in changing that profile. The company has until now restrained from major land acquisitions. The Cadia expansion will impact the company’s production profile much soon and be a key component to changing our view on the company.
Turning to the charts, and on the monthly, the technical picture for Newcrest (ASX:NCM) has improved markedly in recent years. Successive Fibonacci retracements have been eclipsed, with support currently holding firm around the 50% level at $17.08. A monthly close above the next Fib level at $25.21 in the medium term would confirm the upward momentum.
We believe the recent activity to expand the company’s exploration portfolio bodes well for the future. We de believe that the operational issues have not yet full run their course.
We are pleased with the progress the company has made and believe Newcrest Mining may now be moving in the right direction.
Consequently, Newcrest Mining (ASX:NCM) will remain held in the Fat Prophets portfolio.
Disclosure: Newcrest Mining (ASX:NCM) is held within the Fat Prophets Mining & Resources managed account portfolio.
