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Good as gold, but no big-bang buy for Newcrest

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NEWCREST is not about to follow up its $9.5 billion acquisition of Lihir Gold in 2010 with another big-bang purchase despite forecasting that gold could race off to as much as $US2500 an ounce in the next five years.

The miner’s new chief executive, Greg Robinson, said yesterday Newcrest was “not really looking to do a large company merger and acquisition”.

He said the preference was to “capture resources, on the cheaper side if possible”.

Mr Robinson was speaking after telling 700 people at the Melbourne Mining Club luncheon yesterday that he believed gold would trade in a range of $US1500oz to $US2500oz in the next five years. He added that gold was seen as an “insurance against a breakdown in the international financial system”.

The metal is now trading at a two-month high of $US1748oz.

“It will be volatile but it will be within that range. Looking out further you would expect gold to track as value against currencies, inflation and other investment classes,” Mr Robinson said.

Mr Robinson used Newcrest’s 2009 acquisition of a 50 per cent interest in the Wafi-Golpu deposit in Papua New Guinea from South Africa’s Harmony Gold Mining as an example of the type of growth it would pursue rather than big bang M&A.

Some in the market worry that political turmoil in PNG could delay the project. But Mr Robinson said that the recent turmoil there was having no effect on Newcrest’s planning to develop Wafi-Golpu as an annual producer of 800,000oz of gold and 400,000 tonnes of copper, in partnership with Harmony.

“We are confident they will find the right solution. It is an election year so it is going to be a noisy year but we have every confidence in democracy in PNG and we think we will continue on with our development process.”

Newcrest plans to move the project to the feasibility study stage in June. “It is dependent on the speed with which we will drill the deposit and that has got nothing to do with the politics — it’s just got to do with the technical challenge,” Mr Robinson said.

When developed, the mine would be one of the biggest of its type. But Mr Robinson does not think that the value to Newcrest of its 50 per cent interest in the project is reflected in Newcrest’s share price.

“Markets tend to follow projects through their execution steps and they discount things at concept or pre-feasibility (stage). They tend to ascribe value as it gets towards feasibility,” Mr Robinson said, adding that getting to the feasibility study stage implied a 90 per cent probability of proceeding with a mine development.

“This one will complete. It is a great ore body.” He acknowledged there was “probably” a discount factor being applied to the market’s valuation of Wafi-Golpu because of its PNG location.

Harmony sold a 50 per cent stake in Wafi-Golpu to Newcrest for the knock-down price of $100 million in 2009. Newcrest has made no secret of it wanting to buy Harmony’s remaining 50 per cent stake in the project but no deal is in sight as the project becomes increasingly important to both companies.

The group’s planning for the big Namosi copper/gold project in Fiji has also become clouded because of the political turmoil and landowner protests.

Mr Robinson said Newcrest was talking to the military government and landowners.

“It is not as fast as we expected. The community is taking a lot of care to understand what we are doing, and we are fine with that,” he said.