PNG leader fearful of Newcrest slump

Papua New Guinea’s Prime Minister is apprehensive over the problems facing Newcrest Mining and its repercussions for the country’s economy.

Prime Minister Peter O’Neill has asked for talks with Newcrest as the industry still reels from its asset writedowns.

He is looking for a briefing from Newcrest executives, the ABC reported.

The company announced a $6 billion decrease in its asset values, with half of this writedown coming from Newcrest’s PNG ventures.

It also said it will slash more jobs and close its Brisbane office as it applies a host of cost cutting measures to improve cashflow.

Last week, the company announced its business plan review and 2014 budget. It said capital expenditure for 2014 will be revised down from $1.5 billion to about $1 billion and exploration expenditure would be slashed from $160 million to $85 million.

With Newcrest being the biggest operator in PNG’s mining industry, O’Neill wants the company to continue to play a role in the country’s economy through its Lihir and Hidden Valley gold mines and other ventures.

Ausenco was awarded a three-year contract to manage a portfolio of projects at Lihir earlier this year. The company said it will provide delivery services to support ongoing capital projects at the mine.

The services were to be delivered under the EPCM contract working with the Newcrest team.

Newcrest PNG country manager Peter Aitsi said the company is looking to cut costs at the Hidden Valley mine and fix production issues at Lihir.

“Lihir is operating at what we say is our anticipated level of production,” he said.

“We’ve done the refurbishments; we’ve done the upgrade of the plant. We anticipate continued increases in Lihir’s performance so…confident to day it is heading in the right direction.”

While he said May and June production total will reach the revised output targets released in March, he is unsure of PNG government’s tax take.

“In the areas of salaries and wages tax, that will still be paid and paid at significant levels given the number of people we employ,” he said.

“In the area of corporate tax, obviously that will depend on how well we manage our operations depending on movements with the gold price in terms of the income tax we pay.”

PNG's government last year tried to douse miners' fears in the wake of its mining tax review, as miners feared it could look at more nationalisation.

O'Neill used a mining and investment conference in Sydney to discuss with miners before changing the regulations, reassuring them they will be included in negotiations during the review.

In its report Facing an uncertain future: Government intervention threatens the global mining sector, Grant Thornton said increasing government intervention all over the world is making an already risky sector more complicated.

Newcrest sacked 150 workers in April and was reviewing higher cost mines after gold prices dropped heavily.

Most of the job cuts were in Melbourne and Brisbane offices.

The company said it was earning an overall margin of $785 an ounce with a gold price of $1,584/oz, but prices dropped further than the miner’s modest forecasts.

Aitsi said the company is arranging for the prime minister’s briefing.

“We have started having initial talks with his officials and we plan to meet within the next couple of weeks where we can really provide that global understanding for him and look at the areas that possibly government…can lend their support to,” he said.

“From what we’ve experienced over the year it is about ensuring we have a stable and predictable regulatory regime and taxation regime.

The resources industry generates much of the PNG government’s funds, increasing spending on health, education, infrastructure and law and order by 50 per cent.

Newcrest’s shares slumped last week on the back of news the company’s major gold mines may be unprofitable at recent gold prices below $US1400. It ignited rumours of further job cuts.

Many analysts downgraded the company’s stock, concluding its mines cannot profit under a lower gold price.

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