The Newcrest Mining Limited (ASX: NCM) share price will be on watch on Tuesday after an update on its Cadia operation.
What did Newcrest announce?
This morning Newcrest announced that its board has approved the Execution phase of the Cadia Expansion Project.
This is the first of two stages and will see the commencement of the next cave development (PC2-3) and an increase in the nameplate capacity of the process plant to 33mtpa.
The second stage is focused on further increasing the processing capacity to 35mtpa and improving recovery rates. That stage is currently in a Feasibility Study.
According to the release, the two stages have an estimated total capital cost of $865 million.
The majority of this relates to stage one, where $685 million will be spent on activities. This includes PC2-3 mine development, materials handling system upgrades, associated infrastructure, and the initial works to increase plant capacity to 33mtpa.
But it looks set to be well worth the investment. Management advised that the project has an expected net present value (NPV) of $1,170 million. This is based on Internal Rate of Return (IRR) of 21.5%, with payback expected after 7.6 years.
Newcrest Managing Director and Chief Executive Officer, Sandeep Biswas, appears confident that this project will create value for shareholders.
He said "This expansion plan is an improvement on the previous 2018 Pre-Feasibility Study, with an estimated additional 1.8moz of gold production and 67kt of copper production and an estimated $800m increase in projected free cash flow generation by Cadia over its life. The capital investment has an estimated 21.5% rate of return and ensures Cadia remains a Tier One asset for many years to come."
Should you invest?
I feel this a positive development and makes Newcrest an attractive option for investors looking for exposure to gold along with Resolute Mining Limited (ASX: RSG) and St Barbara Ltd (ASX: SBM)
However, due to their valuations, I would only invest if you were confident that the gold price was going higher from here.
