INVESTOR_DAY_AND_CADIA_VALLEY_SITE_VISIT-2012-10-08.ppt

chris terry 1 2 deutsche bank markets research rating hold australasia australia company newcrest mining ltd date 4 october 2012 company update m focus free cashflow after capex to reducing debt in the near term. no gearing covenants, 15% peak is a board directive dividends will grow when gearing and profit allow large-scale m will look to do more farm-in joint ventures with a focus in indonesia, philippines and png experienced the peak of the current cost cycle in august this year; lower prices for fuel, tyres, steel; quicker arrival of equipment; more competitive contract pricing and availability fy12 costs: 41% labour, 18% consumables, 16% energy and 11% maintenance ncm believe wafi-golpu is as good as it gets for next generation of cu-au projects; strong commitment to continue work on wafi-golpu; would pick up additional ownership if given the opportunity continue to believe the wafi-golpu pfs outcomes can be refined and improved 19,000 current employees, including contractors strong focus on working culture to attract and retain experienced personnel employee turnover trending down, currently at 11%, compared to industry norm at 30% for staff and 40-45% for contractors starting to pick up workers in png coming off the pnglng development; also implementing education initiatives and partnerships to ensure future workforce is educated soon to complete new workplace agreements at cadia with little to no union involvement strong focus on technology, particularly developing new ways of introducing operating systems to automate equipment for efficiency gains and improved safety ncms caving expert, german flores, is ex-codelco and been with ncm for 6 years believe bulk cave mining is the way of the future; orebodies becoming deeper, lower-grade and in harder rock expect 100% increase in cave mines over next 5 years page 4deutsche bank ag/sydney 4 october 2012 m targets up to 2mozpa were mentioned reliability improvement program (“renew”) in place at bonikro, focus remains on exploration with a decision to retain the project remaining 12 months away; targeting third quartile cash costs at namosi, the recent focus on rehabilitation of legacy exploration sites, with the government recently indicating their satisfaction with the completed work; landowners have now been directed by the government to re-engage with ncm figure 1: proposed plant expansions to achieve 1.3-1.4moz in fy16 source: newcrest mining 2 october 2012 deutsche bank ag/sydneypage 5 4 october 2012 m this is an encouraging sign they are being careful how they manage the initial stages of the cave propagation at ce and are closely monitoring progress; there is an extensive monitoring system in place to measure cave performance they know how important it is to get the start-up correct to ensure the future cave design is not compromised there is 9-12 months of extensively pre-conditioned ore (blasted) which will present little/no problem to extract; they then move into less-conditioned material for a further 3-4 years before moving into the least conditioned ore (hydro-fracked only) which will start to indicate actual caving rates and ore fragmentation within 12 months theyll know how the cave is propagating, but its not for another 3-4 years until they know the true performance of the cave which can then be extrapolated out over the life-of-mine; this will relate to caving rates and fragmentation they have some methods available to control the caving dynamics, including managing drawpoints to broaden the hydraulic radius of the cave and promote further propagation the zone 20m above the undercut level is extensively blasted and pre- fragmented; the next 150m has been subject of uphole blasting with 15m spaced holes and the material up to 400m above the undercut is hydro-fracked. preconditioning cost $100m 100% of the orebody will be hydro-fracked which assists with cave propagation, not fragmentation monitoring system measures seismicity (related to rock breaking above the cave) and the air gap between the caved ore and the roof of the cave; this air gap is currently 9m with a maximum allowable limit of 25m. a level has been developed 400m above the undercut level which is being used to drill down into the top cave to allow installation of monitoring equipment, including cameras ore contained in the mature cave should undergo some column comminution and assist with fragmentation, although very little benefit from this has been factored into the modelling; overbreak was an issue in the first few years at ridgeway deeps, with extensive secondary rock breaking required number drawbells per panel: panel 1 = 116 and panel 2 = 165; currently 29 drawbells have been fired in panel 1 for the first time, they have provided a ramp-up profile for the entire cadia valley operation including cadia east (figure 2) expected to hit the 26mtpa rate in 2014 from combination of cadia east, ridgeway and stockpiles; continued development of ce through to 2016 when ridgeway is depleted and ce provides 100% of the mill feed. conveyor system fully built and operational page 6deutsche bank ag/sydney 4 october 2012 m however currently being operated at 350tph installation of large underground crusher completed by march 2013 which will lift capacity system capacity to 3500-4000tph ncm continue to believe a$200/oz is an achievable cash cost for cvo mining costs at ce currently around $10.50/t, aiming to reduce to $5-6/t in year 5; stockpile handling $2/t; processing $8/t with 15mt of stockpiled ore to be treated in fy13, a faster ramp-up of ce would directly offset the lower-grade stockpile feed current stockpiles consist of 15mt at 0.4g/t au and another 35mt at 0.4g/t au cadia east average grade 1.0-1.2g/t for first 10 years expanded plant fully commissioned and operational; a few different options to process the various ore types being presented at the moment with a clear focus on ensuring the highest grade material gets through to the mill ie. ridgeway and ce ore further plant expansion to 30mtpa sounds very straightforward at a cost of only $50m additional studies required to support concept of a 35mtpa operation; will wait to see how ce performs over the next few years a further $1.3bn capital to be spent over next 5 years to complete initial development on panel 1 and panel 2 and start footprint expansion on both additional development capital of $100m/year for 10 years to complete the footprint expansion, in addition to sustaining capital of $50m/year the column height of panel 1 will be 825m; this has not previously been done before ridgeway operating very well at the 8mtpa rate, aiming to push up to 9mtpa next year; 4 year mine life at the 9mtpa rate key technical risks: the ce operation is entirely reliant on a single conveyor to move ore to surface remains unknown if the caving rate will match the budgeted mining rate cave fragmentation will be heavily influenced by pre-conditioning in the first 3- 4 years, with potential for fragmentation issues once the cave moves into ore which has been hydro-fracked only potential for the cave to overbreak into unmineralised wall rocks at the margin of the porphyry and cause dilution; although they can stop drawing once waste material presents in the drawpoints at 825m vertical column height, panel 1 will be the tallest column ever achieved deutsche bank ag/sydneypage 7 4 october 2012 m the target price is set at 1.2x npv, within the 1x-2x range typical for large asx-listed gold stocks. we consider this appropriate given our strong gold price view has been factored into the valuation. our dcf is based on life-of-mine scenarios and assumes: wacc 8.9%, beta 0.9, re 9.9%, rd 7.0% and target gearing 10%. risks key downside risks include unsuccessful exploration at the telfer underground, political risks at bonikro in cote divoire and, looking further ahead, the ability for newcrest to deliver on the lihir island mopu expansion and achieve the accelerated development of cadia east. the future of the nsw operations is based on the implementation of a panel caving at cadia valley east. beyond the operational issues is the potential that our strong gold price forecast will not be realised. macro risks include movements in the gold and copper price, and the audusd. upside risks include higher gold price and a faster than expected ramp-up of the cadia east and/or lihir mopu expansions. page 10deutsche bank ag/sydney na 4 october 2012 m as a result, the recommendations may differ and the price targets and estimates of each may vary widely. in august 2009, deutsche bank instituted a new policy whereby analysts may choose not to set or maintain a target price of certain issuers under coverage with a hold rating. in particular, this will typically occur for “hold“ rated stocks having a market cap smaller than most other companies in its sector or region. we believe that such policy will allow us to make best use of our resources. please visit our website at to determine the target price of any stock. the financial instruments discussed in this report may not be suitable for all investors and investors must make their own informed investment decisions. stock transactions can lead to losses as a result of price fluctuations and other factors. if a financial instrument is denominated in a currency other than an investors currency, a change in exchange rates may adversely affect the investment. past performance is not necessarily indicative of future results. deutsche bank may with respect to securities covered by this report, sell to or buy from customers on a principal basis, and consider this report in deciding to trade on a proprietary basis. unless governing law provides otherwise, all transactions should be executed through the deutsche bank entity in the investors home jurisdiction. in the u.s. this report is approved and/or distributed by deutsche bank securities inc., a member of the nyse, the nasd, nfa and sipc. in germany this report is approved and/or communicated by deutsche bank ag frankfurt authorized by the bafin. in the united kingdom this report is approved and/or communicated by deutsche bank ag london, a member of the london stock exchange and regulated by the financial services authority for the conduct of investment business in the uk and authorized by the bafin. this report is distributed in hong kong by deutsche bank ag, hong kong branch, in korea by deutsche securities korea co. this report is distributed in singapore by deutsche bank ag, singapore branch, and recipients in singapore of this report are to contact deutsche bank ag, singapore branch in respect of any matters arising from, or in connection with, this report. where this repo