Australia-based Newcrest Mining (ASX: NCM; TSX: NCM; PNGX: NCM) is building critical mass in Canada with the second significant acquisition announced as the mining major sets its sights on organic and mergers and acquisitions-based growth in the Americas, managing director and CEO Sandeep Biswas tells The Northern Miner.
In 2019, Newcrest took a 70% interest in Imperial Metals’ (TSX: III) Red Chris copper-gold mine in northern British Columbia, and more recently, the $3.84 billion (US$2.8 billion) acquisition of Pretium Resources, announced on November 9, to gain control of its high-grade Brucejack operation in British Columbia.
“Newcrest specializes in what I call tier-one deposits,” Biswas says in an interview. “We have a clear strategy where we want to continue to gain exposure to tier-one deposits, which in our terminology is typically 300,000-plus ounces per year equivalent comprising copper if available, and gold.”
Further, the company has a penchant for long-lived assets, typically 15 years or longer and assets also must be low-cost with the ability to go into the first quartile range, according to Biswas.
“If you look at Brucejack, it fits all the criteria. And it’s in a tier-one jurisdiction as well, which gives us some geographical spread and reduces the geographical risk as well.
“And the other thing that’s good about Brucejack is its exploration potential. I mean, we are explorers. It’s in our DNA,” says Biswas.
The Brucejack mine in British Columbia. Credit: Pretium Resources.
Newcrest feels very comfortable with the geology. “The latest results, even at the recent Golden Marmot discovery, show that there is a high likelihood of finding more epithermal gold, and there may even be some porphyry potential at the extremities of the property. So, all this excites us,” says the executive.
Newcrest was also drawn in by the proximity (about 150 kilometres) of the Brucejack asset to its existing Red Chris operation. This opens an opportunity to extract more significant synergies from an operating and senior personnel standpoint, as well as greater procurement and logistics synergies.
Biswas also says Newcrest will bring its extensive block-caving and epithermal vein experience to the table, which could entail a philosophical step-change for how the future Brucejack asset will be operated.
The company intends to maximize value at Brucejack via a three-pronged approach. First off, as noted, there will be regional synergies with Red Chris. The second piece is around extending the current Valley the Kings mine life.
“It’s still open at depth, and you’ve got a couple of zones nearby that achieves that extensional exploration potential that will give us more mine life from the existing deposit,” says Biswas.
“One of the things about a single asset company like Pretium is they’ve been measured quarter to quarter, and there’s been a market expectation to deliver a specific, consistent grade and ounces. But the reality is all these sorts of deposits, because they’re highly variable, don’t deliver constant grades every quarter. It varies.
“And what’s been happening is there were some sub-optimal decisions made when you’re chasing constant grade. Well, that pressure goes away when Newcrest comes in,” says Biswas.
Why? The company intends to mine the orebody as it presents itself. “It will give us the same ounces, but we can do it far more efficiently because we’re not chasing a specific grade or specific target. And that’s the secret to mining these highly variable bodies,” according to Biswas.
“You’ve got to mine orebodies as they present themselves as opposed to trying to dictate your desires on the deposit. It’s a philosophical shift that we know works. And I think we’ll even pick up more ounces because the mill is currently underutilized. Being able to free that capacity up in the mine should see more tonnes get to the mill and thereby lifting ounces,” says Biswas.
Newcrest also intends to bring across Pretium staff for its growing Americas-focused business unit. “They run a good business. They have some great talent – some are quite young in a technical sense, and we intend to bring on board as many as we can,” says Biswas.
“We’re building a stronger unit in BC, but also building our technical capability to guide our ambition in the Americas, and so, picking up good people like that is a big advantage.”
Internally, Newcrest will also expand the BC office in Vancouver. It will also second a member of the executive committee to Vancouver to establish a direct report of mine, overseeing the Americas growth strategy. “That is what our growth strategy entails, the Americas, not necessarily just Canada,” says Biswas.
Meanwhile, Biswas has strong faith in BC as a top-tier jurisdiction. For that reason, Newcrest has embarked on this latest $3.84 billion investment to acquire Brucejack, and it is also investing about US$2 billion in project work at Red Chris. “You simply don’t make those kinds of investments if you don’t believe you’re operating in a top-tier jurisdiction.”
The Pretium acquisition is the second multibillion-dollar gold acquisition in the Canadian gold sector in the past two months. Agnico Eagle Mines (TSX: AEM; NYSE: AEM) in September offered more than $13 billion to buy Kirkland Lake Gold (TSX: KL; NYSE; KL; ASX: KLA). “My feeling is we will see further consolidation, but probably not so much at the top, and I think you’ll see more of the small to medium-level consolidate as opposed to further ‘blockbusters,'” says Biswas.
Newcrest is also pursuing significant organic growth across the portfolio. It has established robust growth plans at four of its current operating mines to maintain current output at around the two-million-ounce mark through to 2030. The increasing production comes in parallel with a projected reduction in AISC per ounce by more than 50% by the financial year 2030, to around US$500 per ounce.
“There’s no gold company in the world that produces that level of ounces for that AISC. We will be unique when we get there. No other company has that. And that’s what I think sets Newcrest apart. Because it’s not about ounces, it’s about margin. And that’s how I’ve run the company since I’ve joined. And that’s what gives you good free cash flow,” says Biswas.
At Red Chris, the company invests in developing the block caving mining method, “which delivers a great IRR,” says Biswas. “The project is expected to come online over the next five years. We’re building the decline, which provides us with further block cave upside, with some early mining of some hybrid pods potentially bringing ounces forward. But we’ll announce if we decide to do it.”
Newcrest is also considering its options on developing the Eastridge discovery at Red Chris, which is still at an early exploration stage.
Newcrest Mining’s CEO Sandeep Biswas. Credit: Newcrest Mining
At Lihir, in Papua New Guinea, the catalyst is a recent study that proposes bringing forward the million-ounce per year production mark to the 2024-25 timeframe. “Once you get above that million-ounce mark, the marginal costs come down markedly, thereby increasing the operating margin,” says Biswas. “Therefore, the free cash flow that comes from here is exciting.”
Newcrest is also expanding the Cadia mine, in New South Wales, Australia, by adding two mining blocks and modifying the processing facilities, which will increase the tonnage to 35 million ounces plus.
“Because of the copper content, both the Red Chris and Cadia will essentially be producing gold at zero, or negative cost,” says Biswas.
At the Telfer mine in Western Australia, which is reaching the end of its life, the company has announced it will proceed with the West Dome Stage 5 cutback. The cutback underpins the continuity of operations at Telfer, with further mine life extension opportunities to be assessed within the open pit and underground.
“But the Havieron discovery about two years ago is proving to be very exciting,” says Biswas. “And that will help offset the decline of the Telfer orebody as that mine starts to come online.
“So, every asset that we have has great upside.”
Aside from the expansion prospects, Newcrest also still has the Wafi-Golpu project in PNG, which is not yet permitted. “That is the highest-grade undeveloped copper-gold porphyry in the world. It’s a fabulous deposit. And we really do want to get that approved,” says Biswas.
“And then we have to work out what we’re going to do with Brucejack once it comes into our portfolio. So, we have a full plate, lots of organic growth options as well as inorganic, and having that blend is what we’re looking for,” says Biswas.
Biswas says Newcrest loves having significant exposure to copper in its portfolio. “We’re going to increase our production by 37% over the next eight years. In my view, every gold company should have a healthy exposure to copper.”
At press time, Newcrest’s Sydney-quoted shares last traded at A$24.66 apiece, down more than 17% over the past 12-month frame. It has a market capitalization of A$20.17 billion ($18.466 billion).
The share holders are getting Robbed by Newcrest and Pretium’s Directors . Long term share holders will be voting it down. I can’t see VanNck and other large portfolio management going for this as they will be losing money for there clients. They all know that this deal is way to low cash wise.
Wrong calculated “transaction” between Newcrest and Pretium management. Newcrest needs urgently the “green gold” producer Pretium who is powered by clean hydro electric power. Newcrest’s eco /climate change balance with their low grade Red Chris mine in BC looks terrible. Government and public will have an eye on Newcrest’s dirty mining in BC. Further there are no financial figures given to Pretium shareholders for the take over price calculation, which is obviously much too low. Thus it will be voted down by Pretium shareholders. They are not stupid and know basic financial mathematics.