Newcrest’s 2020 growth ambition takes shape in Ecuador

8th March 2018

Newcrest Mining boss Sandeep Biswas prides himself on ensuring Newcrest lives up to its mantra of being a company that does what it says it will do, writes Barry FitzGerald on MiningNews.

So when Biswas said last month he wanted Newcrest to have ‘’exposure’’ to five Tier 1 orebodies by 2020, up from the current three of Cadia, Lihir and Golpu, there should have been an expectation that something would soon follow.

And it did – the US$250 million acquisition of a 27.1% interest in Canada’s Lundin Gold, the owner of the at times controversial Fruta del Norte gold project in Ecuador.

The acquisition was announced all of nine days after Biswas declared his 2020 target of five Tier 1 orebodies.

While the move on to the Lundin Gold share register was in keeping with Biswas’ mantra of Newcrest doing what it says it will do, the deal was nevertheless portrayed by the market as something of a surprise.

The surprise element was not because the acquisition came so soon after Biswas announced his 2020 ambition.

It was a surprise because a 27.1% portfolio position in 340,000 ozs of annual future gold production does not exactly move the dial for a company the size of Newcrest with its A$17 billion market value.

But that assumes the initial 27.1% stake in Lundin Gold is the end game. It won’t be.

While Newcrest cannot increase its stake beyond 32% for eight years, the standstill agreement falls away should a third party or Newcrest make a takeover bid, or if Lundin Gold makes a “significant transaction not supported by Newcrest".

So it is a kind of Clayton’s standstill. Apart from the obvious opening of Newcrest knocking out the standstill by making a takeover bid, Lundin Gold has been beating the drum this week on its own ambition to become a one million ounce-a-year producer in a hurry.

Singing from the same hymn book as Newcrest’s, Lundin Gold chief executive Ron Hochstein said on the sidelines of PDAC in Toronto that he wanted the company to source the targeted gold production from three or four operations in Latin and North America.

That suggests he is eyeing any number of transactions which Newcrest might not support, killing off the standstill in the process.

The bigger question then is if Newcrest would want full and direct ownership of Fruta del Norte anyway. The project does meet its definition of a Tier 1 asset – a project capable of producing 300,000 to 400,000ozs of gold annually for more than 15 years, with a second quartile cost position.

On Lundin Gold’s figures, the US$684 million Fruta del Norte development is good for at least 14 years of average annual production of 340,000ozs at a life-of-mine all-in sustaining cost of $609 an ounce, with first production slated for the end of next year.

Newcrest’s “exposure’’ to that is 92,000ozs. Again, that is no big deal for a A$17 billion company. But the exposure and the timing of first production does dovetail neatly with the expected fall away in production in Newcrest’s secondary assets, Gosowong and Telfer.

However, that doesn’t represent growth – the clear aim of Biswas launching Newcrest on a five Tier 1 mines by 2020 crusade in the first place. But there would be growth if Newcrest was to make a takeover for the US$475 million Lundin Gold.

The blocky nature of the share register lends itself to a takeover. Apart from Newcrest, the other shareholding blocks are the Lundin family with 22.3%, and Lundin gold’s streaming partner, Orion Mine Finance, with 11.4%.


Subscribe to the RRS Weekly Wrap

© 2018 Resources Rising Stars All Rights Reserved