Newcrest investors have been dealt another blow after the gold miner cut its production targets by 10 per cent due to ongoing problems at its Lihir operations.
But analysts say the eight per cent share price fall on the back of the announcement could be overdone due to the company’s solid fundamentals.
Shares in Newcrest were down by $1.82, or 8.32 per cent, to $20.05 on Thursday.
While Newcrest’s assets in Australia and Indonesia are performing soundly, the Lihir operation in Papua New Guinea has been plagued by maintenance problems as company continues to fix parts of the plant.
“Primarily as a result of the restricted production capacity at Lihir, the company has determined that the original guidance provided for financial year 2012/13 gold production is no longer achievable,” Newcrest said in a statement.
Newcrest, which also announced a series of executive changes on Thursday, reduced its gold production guidance to between 2 million and 2.15 million ounces for the 2013 financial year, around 10 per cent below the original minimum guidance level.
The company has decided to completely repair its autoclave at Lihir, which will take between five to seven weeks to complete.
Morningstar Resource analyst Mathew Hodge said the future would look brighter for Newcrest if it could overcome problems at Lihir by next year and make the $9 billion takeover for Lihir Gold pay its way.
“Ultimately what matters for Newcrest is that they ramp up Lihir and ramp up Cadia and get solid, consistent low-cost production,” Mr Hodge said.
“If they do that they’ll restore their position as a low-cost producer.”
The next year would be a big test of Newcrest’s management.
He said investors might think differently about the stock in a 2014.
“People are implying that things are going to continue to be bad, but I think it’s a bit overdone.”
Operations at Cadia Valley in NSW and Bonikro in the Ivory Coast are expected to deliver within their original guidance ranges, while Hidden Valley production in PNG is in the range of 80,000 to 90,000 ounces.
The Telfer operation in Western Australia was affected by the heavy rainfall in February associated with Cyclone Rusty but is still expected to reach its original guidance.
Annual copper production guidance remains unchanged.
Newcrest also announced the appointment of Geoff Day as executive general manager (EGM) of sustainability and external affairs to succeed Stephen Creese, who is retiring from his current role as EGM of corporate affairs on July 1.
Last month Newcrest reported that first half profit dropped by 51 per cent due to weaker production and sales.
AAP krc/jmc
