Newcrest Mining Limited (NCM)

Tails dam burst at Cadia lowers NCM production guidance for FY18

What’s happened?

  • NCM reported a breakthrough of tailings material from the Cadia northern tailings dam embankment. While no environmental or safety breaches have yet been recorded, NCM wisely ceased operations at Cadia to allow for a geotechnical assessment of the incident and to prepare a remediation plan.
  • Cadia Mine was shut down for an extended period last year after a magnitude 4.3 earthquake affected stability in its underground operations. Geoscience Australia recorded two earthquakes occurring south of Cadia on Thursday 8th March at a depth of 10km and at a magnitude of 2.7. It is possible that the wall failed as a result of those shocks.
  • The embankment in the northern tails dam gave way into the southern tailings dam down slope. Both northern and southern dams are active and hence NCM progressively ceased operations over the 9th and 10th March.
  • Cadia has a major impact on the earnings of NCM, being one of its largest operations, but importantly, its lowest cost operation. NCM has stated that its production guidance for FY18 will be affected by the tailings breakthrough but, at this stage, is unable to quantify that impact.
  • In FY17 Cadia produced 600,000 ounces of gold from the processing of 22 million tonnes of ore. At the end of 2017 combined resources and reserves stood at 3 billion tonnes at 0.37g/t gold, 0.26% copper and 0.68g/t silver, containing 35Mozs of gold and 7.7Mt of copper metal.

Likely next steps

  • NCM are now likely to assess the current failure and determine whether there is any likelihood of additional failure to the dam wall. A remediation strategy is likely to involve earthworks to repair the immediately affected area but also potentially the surrounding areas of the wall. Alternative sites for tailings disposal are being considered by NCM, including in-pit tails storage.
  • In our view, future earthquakes could result in similar damage. NCM are also likely to review the dam wall in the southern dam as a failure of this structure would have potential for major, long-term affects to the operation at Cadia. NCM will need to satisfy the regulatory authorities that both dam walls can withstand future shocks. This may require additional earthworks / reinforcement across both dam walls.

Effect on cashflow

  • Based on the last available information, Cadia produced 300,000 ounces for 1HFY18 at an AISC of US$135/oz after credits. We estimate that cessation of the Cadia operation will cost NCM approximately US$1.9m per day in lost operating cashflow plus the costs of remediation work. It will reduce gold production by approximately 1,650 ozs per day.
  • We take the view that remediation work on the dam wall could take some time. Possibly a matter of weeks rather than days to complete. We estimate that the failed section is approximately 200m wide.
  • NCM may be able to continue some operations if the company gets approval from the regulatory authorities but it is too early to tell at this stage if this would be possible.
Figure 1. Photo of failure on northern dam wall. Southern dam in the foreground (Source: NCM)

Figure 1. Photo of failure on northern dam wall. Southern dam in the foreground (Source: NCM)

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Paul Adams

Head of Research

Paul joined DJ Carmichael in 2006 as a Resource Analyst. Paul has an honours degree in Geology, is a member of the Australian Institute of Mining and Metallurgy and has 16 years experience in the mining industry in exploration, open pit, underground and operational roles, both in Australia and overseas. Before joining the company, he was Chief Geologist and Evaluations Manager at Placer Dome's Granny Smith mine. Paul has a Graduate Diploma in Applied Finance and Investment, fromthe Financial Services Institute of Australasia.