Newcrest/Santos: Same Issues

Sydney, July 25, 2008 (ABN Newswire) - World gold prices took a pounding this week, especially Wednesday night and the $US25 an ounce drop had the expected impact on the shares of the country's biggest gold miner, Newcrest Mining which also issued its 4th quarter and 2008 financial year production report.

Newcrest shares shed more than $1.70, or around 5%, to close at $29.40 on the slump in the world price.

Newcrest shares have also been weaker because of worries the WA gas crisis would cut output and profits from the huge Telfer mine. Newcrest scrambled to find other fuel supplies after the gas was shutdown on June 3.

The company told the ASX that gold production in the three months to June 30 fell 1% to 435,120 ounces compared to the third quarter, while compared to the previous corresponding quarter in 2007; production was down a more significant 6.06% from 463,170 ounces.

Annual gold production for fiscal 2008 rose though to a record 1,781,182 oz, up 10.14% from the 1,617,251 ounces produced in 2006-07.

Newcrest said in the quarterly report that it had met all of its gold production guidance except for the Telfer mine in Western Australia.

The company said its mines at Cadia Valley and Gosowong continued to perform strongly with both operations achieving record annual gold production.

"As previously indicated Telfer's production and costs were impacted by the gas supply interruption caused by the explosion at Apache Energy's Varanus Island gas plant," Newcrest said.

Gold production at Telfer in the fourth quarter was 146,101oz, up from 130,930oz in the previous quarter but down sharply on the 167,880oz in the June 2007 quarter.

Copper production for the final quarter rose 6% to 22,394 tonnes on the previous quarter, helping Newcrest achieve its annual copper production guidance.

Compared to the last quarter of 2007, copper edged up less than 1% to around 22,390 tonnes.

Group fourth quarter cash costs fell to $276 an ounce from $285 an ounce, while full year costs were $261 an ounce from $280 an ounce.

Newcrest said it achieved a gold price in the fourth quarter of $961.00 an ounce, up significantly from $748.00 in the previous corresponding quarter while it achieved a fourth quarter copper price of $4.06 per pound up from $3.64 per pound in the final three months of 2007.

Newcrest said mineral resource and ore reserve estimates to be released on August 19 would "confirm a substantial increase".

The Ridgeway Deeps development remained on schedule and on budget with 71% of the capital committed and construction 39% and despite the disruptions at Telfer, Newcrest said quarterly production was higher on the previous quarter due to increased open pit and underground grades and higher associated recoveries.

Newcrest said it continued to implement its strategy of growth through greenfields and brownfields expansion:

"Optimisation of the future Cadia Valley production profile has identified the opportunity to develop a larger underground panel cave mine that will increase production of gold and copper; a large advanced exploration target at O'Callaghans, 10km south of the Telfer processing plant has been identified

"This drilling has confirmed a flat lying exploration target containing potentially economic levels of tungsten, copper, zinc, lead and molybdenum. This sheet of skarn mineralisation is located approximately 300m below surface and is between 20 to 80m thick and has been traced along strike for some 2.5km," Newcrest said in its report. A resource estimate is expected by the end of 2008 and one as well for drilling elsewhere on a potential mine expansion below the current operating Telfer Deeps sub level cave mine."

New joint venture agreements were negotiated to explore high quality North American gold properties at Horse Mountain (Nevada) and Croy Bloom (British Columbia) and drilling results at Namosi (Fiji) identified the existence of higher grade mineralisation that is open at depth below the known Waisoi East and Waisoi West deposits.

Like Newcrest, Santos reported it's latest quarterly (second and first half) production figures yesterday into a sector battered by the falling price of its key commodity, oil.

For Newcrest (see above) it was a plunging gold price. But Santos' 20% drop from its peak last month of around $22 to yesterday's close of $16.98 (down 60c on the day), was an overshoot, seeing oil prices are off around $US23 a barrel, or around 15%.

It has been a short sharp shock, but Santos has also seen investors sell because of a perceived adverse impact on first half earnings from the WA gas crisis. Santos owns a stake in one of the two producing areas serviced by the Varanus Island facility off the northwestern WA coast.

There was no sign of any impact in Santos's expectations yesterday.

It reported a lift in revenue, despite a drop in half-year production due to the suspension of gas processing on Varanus Island since early June, and also trimmed its full year production guidance.

The original estimate of 56 to 58 mmboe has been cut to 54 to 56 mmboe.

The company said revenue for the six months to June was $1.38 billion, up 14% on the previous corresponding period after it produced 27.6 million barrels of oil equivalent (mmboe) during the half year, down 8% from 30.1 mmboe in the same period in 2007.

Santos said production was hampered by the shut-in of its John Brookes gas and condensate field after the Apache Energy-operated Varanus Island facility was shut down on June 3. Santos owns 45% of the John Brookes joint venture and Apache holds the remainder.

Santos' production was also cut by a planned workover campaign on the Mutineer-Exeter oil platform in Western Australia's North West Shelf. (It holds a 33.4% interest in this project and is the operator.)

The company reported an 18% rise in second quarter sales revenue, to $749 million, from $634 million in the March quarter. Second quarter production fell 11% from the same period of 2007 (the WA gas shutdown's impact mainly) but revenue rose 18%.

The company said the second quarter average realised oil price of A$132.69 was 56% higher than the previous corresponding period.

Acting chief executive David Knox said this record result was pleasing given the impact of the workovers and shut-in.

"We are very pleased that rapid regulatory approval enabled our partnership transaction with Petronas to complete yesterday in Kuala Lumpur, with Santos receiving $US2 billion ($2.1 billion) for a 40% stake in the GLNG project,'' Mr Knox said.

The $7.7 billion project will involve a 3-4 million tonne per annum (Mtpa) LNG processing train and associated infrastructure, with first cargoes expected to be exported in early 2014.

"A further payment of $US500 million will be made by Petronas upon reaching a final investment decision for a second LNG train of 3Mtpa capacity,'' Santos said.

The company said its second quarter average gas price of $4.01 per gigajoule was 4% higher than the previous corresponding period.


 

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