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Newcrest Mining Ltd. (NCMGY.PK)

2009/10 Full Year Results Earnings Call

August 16, 2010 8:00 am ET


Ian Smith - CEO and Managing Director

Greg Robinson - Finance Director


Cathy Moises - Evans and Partners

Anna Kassianos - Austock Securities

Stephen Gorenstein - Merrill Lynch

Michael Slifirski - Credit Suisse

Cameron Judd - Morgan Stanley

Warren Edney - RBS


Ian Smith

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Welcome everyone to our full year results for Newcrest. I think everyone would agree that it is a fairly solid result for the end of the financial year. I'll be going through the introduction. Greg will guide us through the financials and the sensitivities, plus site guidance. Then I'll be going back over resources and reserves, exploration and then some Group guidance and a bit of a note and an update on the timetable for the Lihir transaction.

So the summary and introduction of financials; our underlying profit is up 58% to A$764 million. Our statutory profit increased a 124% to A$557 million. Our cash flow from operations is up 27% to A$1.3 billion.

We have a strong balance sheet, so we have negative gearing. And also, we have increased the final dividend to A$0.20; so a A$0.25 dividend for the full year. And in line with the guidance we gave last year, we're well on track to achieve the 2.3 million ounces in 2014.

As you'd appreciate, that is pre-anything to do with Lihir. So I'm just telling you that we're still on track to that original guidance point, but over the next few months we'll be giving you an update on the basis of the full integration, if and when it does come to pass. And cash costs to remain well within that first quartile going forward over the next five years.

Reserves and resources: The gold reserves increased to 47.3 million ounces, which was an increase of 11%. Our copper reserves had an appreciable uplift of 7.88 million ton, so up 69%. Resources increased to 83.6 million ounces and 17.25 million tons of copper - so appreciable uplifts. And when I go through the particulars of it, I think it's an affirmation of what we've been doing strategically in exploration, and that's diversification through developing a whole cohort of assets going forward.

On the growth pipeline, Ridgeway Deeps and Hidden Valley are both commissioned. Gosowong expansion is near completion, so that will be finished in the next month or so. Cadia East has commenced and on track and schedule. Gosowong's second mining front is progressing well, and I'll come back to that later when I'm talking to reserves and resource.

And Wafi-Golpu and O'Callaghan studies are well underway. In fact with O'Callaghans we're already up, we are talking to potential partners. So we're progressing our future growth pipeline as well as affirming our results.

I'd now like to hand over to Greg Robinson, our Finance Director, who'll be taking you through the financials.

Greg Robinson

Thanks, Ian and good morning everyone. In the financials, obviously Ian's gone through the highlights, very solid results. And with sales revenue increasing by about 11% during the year, EBIT/EBITDA margins very strong, nice increases there, 51% on EBITDA and EBIT margins of 40%. The results, net profit up 58% to A$764 million, the statutory profit up 124%, and the cash flow is up 27% to A$1.3 billion.

Looking at the revenue line, our gold production during the year was 8% higher. Our copper production was about 3% lower. Looking at gold, if you look at that revenue line, gold makes up about 75% of our revenue, pretty similar to last year. Gold sales increased 7%. Copper sales were down 7%.

And if we look at prices, the copper price more than compensated for the lower gold sales. So average gold price for the year was up 7% and the average copper price was up 18% to A$3.40. Gold and copper revenue therefore increased about 10% each, and obviously the strong copper prices compensating for that lower copper production and sales.

The average exchange rate for the year, we had A$0.88 this year, A$0.75 the year before; so obviously, much stronger currency, but stronger commodity prices with it.

Looking at total cost of sales, they reduced. So we had a good reduction with increased productivity, and that led to lower cost per ounce. In fact our cost per ounce this year was US$306 an ounce. I'll cover that a bit later.

So obviously the big drivers for us in lower cost per ounce for productivity, and then cost containment. And that's what I'll talk about in these next few slides.

So total cost of sales was down 4.2%, and that was driven by a series of cost containment measures, and also, the stronger A Dollar helped us.

So looking at mine production costs, very good containment here. We included within this cost, remember, two months of Hidden Valley and we came out with a number that was $1 million less than last year. So with all those productivity increases, we managed to keep mine production costs static to last year including a couple of months of Hidden Valley.

The big activities that benefited the group, there was lots of good cost initiatives within the group, but Gosowong we turned into an owner-miner underground, which was very beneficial including looking after our maintenance.

The Telfer maintenance scheduling really reduced costs and headcount containment there really improved things. We had much lower fuel costs and you see that in the breakdown there, but cost per liter of fuel declined from about A$0.98 a liter to A$0.78. So that was very good, lot of it also driven obviously by the strong A Dollar.

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