Newcrest Mining Limited (ASX: NCM) shares will be on watch today after announcing the approval of its Cadia expansion.
Newcrest is a gold miner and it owns Cadia, one of Australia’s largest gold mines in NSW.
Cadia expansion and Lihir recovery
The Newcrest board announced the approval of two projects.
Cadia Expansion
The first is stage 2 of the Cadia expansion project which comprises the addition of a second coarse ore flotation circuit in concentrator 1 and equipment upgrades in concentrator 2, which are expected to add a number of benefits.
It will increase the plant capacity from 35mt per year to 35mt per year. Life of mine (LOM) gold recoveries will increase by 3.5% and LOM copper recoveries will increase by 2.7%. The all-in sustaining cost will reduce by an estimated $22 per ounce.
The estimated capital cost of stage 2 is $175 million, $5 million less than the October 2019 estimate. The project is expected to complete in late FY22.
It has a projected internal rate of return of 21% with payback in 4.2 years.
Lihir recovery project
This project comprises the installation of flash flotation and additional cyclone capacity as well as cyclone efficiency upgrades, to improve grinding classification and reduce gold losses through the flotation circuits.
It’s projected to increase LOM gold recoveries by 1.2%. Incremental LOM gold production is estimated to increase by 244,000 ounces.
The estimated capital cost of this is $61 million. It has a projected internal rate of return of 32% with payback in 2.6 years.
Summary
Newcrest is one of the biggest gold miners in the world. It’s good to see it continue to invest in growth. It’s a good time to be mining gold because of the heightened gold price.
However, I’m not sure how long the gold price can stay elevated. Will it fall when COVID-19 subsides? It’s best not to invest at high commodity prices. For that reason, I’d rather invest in other ASX dividend shares like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) which I covered here.
