The Newcrest Mining Growth Story

The Newcrest Mining Growth Story

Set up in 1966 as a subsidiary company, Newcrest underwent a remarkable journey to become one of Australia’s largest gold miners. Let’s explore its amazing journey!

Established in 1966 as the subsidiary of the Newmont Mining Corporation, Newcrest is the leading gold mining company in Australia and the largest gold producer listed on the Australian Securities Exchange.

Although its primary operations are in Australia, the company has expanded beyond borders into Indonesia, Canada, Ivory Coast, and Papua New Guinea.

Below are some of its key metrics and data from 2021 to help you get an overview of where Newcrest stands today:

From a small Australian company to one of the world’s largest mining corporations, Newcrest has come a long way. It has faced many challenges along the road and undergone several changes, but time and again, the company has managed to come out on top, becoming a force to be reckoned with in the metal and mining industry.

Let’s trace its footsteps and understand the strategies that led to Newcrest’s massive growth.

The Path From Holding to Mining

Although Newcrest was established in the 1960s, its journey had begun several decades earlier. In fact, formally, the company’s story began in 1926, when Colonel William Thompson formed Newmont Mining Corporation as a holding company. From there, the corporation changed its ways significantly and gradually entered the arena of mining.

The Colonel Lays the Foundation

William intended Newmont to be a holding company. It had the aim of investing in mineral, oil, and related companies; not focused on actual mining operations and exploration. His plan was to initiate projects, exit with profits, and move on to new ones right after.

william-thompson-newmont-corporationSource

This pattern continued for only a few years until the Colonel passed away in 1930. He was succeeded by his attorney Charles A. Fyer who took the reins of Newmont and changed its trajectory.

It marked the start of something very different. In fact, it might not be wrong to call it the real starting point of the Newcrest that would go on to become such a well-renowned global mining company.

Change of Direction After Colonel’s Departure

With a new commander at the top, Newmont was set to broaden its horizons and venture into actual mining operations instead of being a mere holding company.

The model of getting in and out of investments was modified, and actual investment projects of mining were initiated. Newmont acquired O'okiep Copper Company in South Africa and Idarado Mining Corporation in Colorado. A new oil company was also started, named Newmont Oil Company, whose purpose was to explore Texas and Louisiana for oil reserves in the US. Hence, in a very short span, the company was exploring multiple opportunities in the mining sector.

However, this did not mean the company completely discarded investment options and completely shifted towards mining operations. In fact, investments still contributed significantly to its income. The move towards mining allowed the firm to diversify its portfolio and gain stability with long-term ventures.

Moreover, it assumed a hybrid model of investments and mining ventures through its acquisitions. The investments included Kennecott, Phelps Dodge, and Hudson Bay Mining & Smelting. Interestingly, even though most of the mining businesses were concentrated on oil and copper, 19% of the investments at that time were related to Gold. 

Thus, from the onset, Newmont had shown that it considered gold a commodity of high returns and its interest foreshadowed what path the company would take in the future.

Key Takeaway 1: Focus on Long-Term Growth

The colonel’s approach of initiating projects and selling them off as soon as they returned desirable profits was a strategy focused on short-term gains. While it did provide a shortcut to get quick gains, it was unsustainable, especially in mining.

The shift towards operations while maintaining smart investments meant a paradigm shift towards a hybrid model, which proved successful and allowed for expanded operations and more significant returns.

Thus, targeting long-term growth paved the way for the company to not only generate significant returns for the short-run, but it also opened up avenues that allowed the company to become an international giant in the future.

Post World War II - A Tumultuous Period

The second world war was a very difficult period for industries across the globe. As costs increased and the availability of labor reduced, mining companies had to look for ways to counter the effects of war.

Newmont did that excellently.

War Forces to Look For Other Ways

As the war began in 1939, operating and manufacturing costs increased. The US faced a labor shortage because of recruitment by the military as well as a slowed economy due to the war. Realizing that different approaches had to be taken to counter the effects of the war, it began looking for cross-border ventures.

This is when the company headed to South Africa and acquired a copper mine. Compared to Australia, over here, costs were lower and there was sufficient labor. Thus, Newmont was able to efficiently meet the rising demand for copper during that time without bearing the burden of additional costs.

This wasn’t the only change the company underwent during that era. It took the getting-your-hands-dirty concept to a very practical level. In 1950, Fred Searls became the president who disliked the office environment and instead preferred being actually there in the mines.

A year later, Newmont also invested $13 million in Sherritt Gordon Nickel Company, which went on to become one of the largest nickel producers globally.

Malozemoff’s Leadership and Acquisitions

Mr. Plato Malozemoff, a Russian national, became the president in 1954. Having studied mining and metallurgy in the US, he started as a mining engineer at Newmont until finally becoming president.

Under his leadership, Newmont grew to new heights since Malozemoff had extensive mining experience and knowledge. Furthermore, he did several synergic acquisitions that strengthened the company.

This meant that combined the companies worked so well together that instead of simply adding two sets of workforces or customers, the company’s boosted their overall performance and value by much more than they would have done so alone.

This is exactly what Malozemoff planned with his strategy. To name a few, Newmont formed the Southern Peru Copper Corporation with Phelps Dodge, and Cerro de Pasco in 1955, which helped Newmont expand its copper domain.

In the same year, the company's interest in the Dawn Mining Company built a uranium oxide mine in Washington State. Newmont also purchased a 28.8% stake in the development of a copper mine in South Africa, with Rio Tinto.

The Fruit of Investments and Copper’s Fall

Under Malozemoff, Newmont had spent hefty amounts on exploration. Its investments had started to bear fruit, with the South African properties yielding dividends worth $20 Million for Newmont.

The company acquired Magma Copper, of which it already had a majority interest. This further added to benefits for Newmont. At that time, Magma had $26 Million in earnings. Around 75 percent of Newmont’s revenue now came from copper. This meant Magma was a major contributor to Newmont’s income. With time, Newmont also reduced its reliance on cross-border companies and increased its share of income from companies in North America.

After 1975, the price of copper began to sink, reaching new lows. This posed threats to Newmont’s income. This is exactly what followed as the company’s earnings decreased to just $5.1 Million.

Newmont began to recover towards the end of the decade. It also started looking towards investing in coal. The company slashed costs by suspending operations at Idarado Mining Company, and the Gamsberg zinc project, a joint venture in South Africa.

The company had also ventured into coal to diversify its products. The termination of the coal strike in 1978 also allowed Peabody, an acquisition of Newmont, to reclaim profitability. Higher gold prices benefited the Carlin operation, and the Newmont Oil affiliate began to benefit from the deregulation of additional natural gas. Similarly, the Atlantic Cement Company turned a profit in 1978, after losing $400,000 the year before.

By 1979, gold had begun to play a major role in Newmont's operations.

Key Takeaway 2: Resilience is The Key

As any negative event adversely affects the economy and corporations’ financials, so did World War II with a labor shortage and high costs for all industries.

During this time, Newmont stayed resilient and sought ways to grow its business through other avenues. With a new chairman, Malozemoff, at the top, it opened new income streams through foreign investments and utilizing the demand for copper. This meant that despite it being a difficult period for firms overall, Newmont was able to not only survive but also expand its operations instead of letting the downturn bog down business.

This highlights the importance of resilient leadership that knows how to deal with downturns, especially for capital-intensive firms.

Gold Enters The Game

The journey into becoming a full-fledged mining company all started in Carlin, Nevada in the US with the Carlin Mining Company becoming a subsidiary of Newmont.

The venture was such a success that it did not take long for Carlin to become the second biggest gold company in the US.

Importance of Gold Comes Into Play

By the end of the 70s, gold started playing an important role for Newmont bringing in more revenue. As gold prices rose, the company knew it had to capitalize and invest further in gold mining. Copper and coal were no longer a viable choice if long-term growth was the aim.

It started mining gold at Maggie Creek which was near the Calin mine. Further, it struck gold by discovering Gold Quarry, one of the biggest sites with over 8 million ounces of gold. However, much of the Quarry’s shares were later purchased by a British Company.

A Takeover is Avoided

In 1986, Carlin Gold Mining Company was renamed Newmont Gold Company. T. Boone Pickens and his investment group, Ivanhoe Partners, tried a takeover of Newmont the next year, offering $95 per share for the 90 percent of the company that they did not already own.

The takeover effort was halted, however, when CGF increased its stake in Newmont to 47.7% in one day, thanks to Newmont's announcement of a $33-per-share dividend payment as part of a new restructuring plan. To make up for the cash outflow caused by the dividend, Newmont began selling off its properties one by one. The company avoided the expenditures of updating Magma's facilities by spinning off Magma Copper to its stockholders.

The Focus Now Comes To Gold

After extensive restructuring, Newmont started shifting its focus to gold. It sold its shares in Newmont Oil as well as the majority of non-gold holdings. It soon became the largest gold producer in North America.

newmont-oilSource

In 1992, it began further exploration and mining of gold, both in North America and abroad. With a contract with Uzbekistan, a venture in Indonesia, and two new sites in Oregon and Idaho, it was well on its way to becoming the leader in the gold domain.

Key Takeaway 3: Diversification leads to progress

Just as in finance diversification minimizes the risk of a portfolio, in mining, where the capital expenditures are high and wavering prices pose risks, diversification of products is the way for companies.

This is what Newmont realized as it initially ventured into copper, then coal and oil, and eventually shifted to gold. Thus, even if the market for one metal or mineral was not performing well, the company did not bear its impact completely.

Moreover, the choice of gold proved to be particularly successful as the prices either remained stable or rose mostly. Further, with its smart investments and interests in several companies, it made its market space in the gold domain very early which has led Newmont to its current gigantic status.

Newcrest is Formed

With ample history of how Newmont began and became what it is today, let us now look towards Newcrest.

Newcrest initially was formed as a subsidiary of Newmont in 1966 which is now the leading gold producer in Australia and continuing expansion.

newcrest-mining-limitedSource 

It Starts With a Subsidiary

The history of Newcrest starts around 1966 when Newmont Mining Limited formed a subsidiary, Newmont Holdings Limited, which was then renamed Newmont Australia Limited.

Newmont Australia Limited bought Australmin Holdings Ltd in 1990, then amalgamated with BHP Gold Limited (92% interest) and renamed itself as Newcrest Mining Limited, its current name. Its primary location was Australia until 1991 when it commenced operations and exploration overseas. 

Overseas Expansion

In 1992, Newcrest discovered its first overseas gold exploration site in Halmahera Islands, Indonesia. It announced in 1996 that it aimed to develop itself into a global and internationally recognized producer.

Years of exploration in Australia and abroad were paying off in 2002, and the Newcrest group was valued at more than $2 billion.

The company’s world-class exploration team has an impeccable track record of discovery, having discovered all of the company's mining properties. Between 1992 and 2005, the Metals Economic Group recognized Newcrest as the most successful business in terms of discovering large gold mines.

Where Newcrest Stands Today

By production, reserves, and market capitalization, Newcrest is Australia's largest gold producer and also features in the list of the top ten gold mining companies in the world. The company's low gearing and robust balance sheet put it in a favorable position to fund large development projects.

As of 2021, Newcrest employs a total of 12,800 people, including 4,900 on a permanent basis and 7,900 on a contract basis. It owns efficient and old mines as well as a diverse variety of brownfields and greenfields. The company's reserves have been increasing for many years.

The Key Products

Newcrest today has two primary products, gold and copper, and their derivatives as the revenue streams. Copper forms 22% of net revenue whereas gold is 77%. In FY21, 2.1 Million oz of gold and 143 kT of copper were produced. The realized price of gold was $1,796/oz and $3.66/lb for copper.

The majority of Newcrest's copper-gold concentrate is sold to Japanese smelters under long-term contracts. The concentrate from the Saganoseki Smelter and Refinery is shipped to Kyushu, Japan's southernmost island, where it is transformed into 99.99 percent pure gold bullion and traded on the Asian metal market. Newcrest, on the other hand, sells concentrate to merchants who then distribute it to various regional smelters under their own contracts.

Key Takeaway 4: Optimization and Expertise Are The Way Forward

The edge that Newcrest has today is its modern facilities and optimized levels of production and costs. This has catapulted it to the status of one of the leading gold producers in Australia. Further, by investing in overseas projects, it has achieved diversification and cost reduction by selecting sites that save costs. Newcrest also constantly updates its equipment and mining techniques in line with changing dynamics.

Thus, the company has very efficiently developed a path for itself to continue growing with the needs of the industry and the demand of its customers.

The Business Strategy and Operations

Newcrest aims to optimize the cash flows and efficiency of its assets, operating projects, and exploration sites.

As a top gold producer with a strong balance sheet and healthy cash flow, along with its modern techniques and plans of organic growth opportunities it is well placed to increase the wealth of its shareholders.

Newcrest is listed on the Australian Securities Exchange with the symbol ASX Toronto Stock Exchange as TSX and the PNG Exchange Markets as PNGX.

The Vision, Purpose, and The Edge

Newcrest is determined to become the miner of choice that is:

  • Valued by its people and communities
  • Respected by its partners, customers, suppliers, and peers
  • Celebrated by its owners

It aims to lead towards a better future for people with safer and more efficient mining. Its edge, it believes, is its collaboration, innovation, and owner’s mindset.

Newcrest’s Strategic Pillars

In February 2021, Newcrest announced the ‘Forging An Even Stronger Newcrest’ plan, which outlined the aspirations across five key pillars that it aims to achieve by the end of the calendar year 2025. Its strategy is based on these five pillars:

  1. Safety and Sustainability
  2. People
  3. Operating Performance
  4. Technology and Innovation, and
  5. Profitable Growth

1) Safety and Sustainability

Newcrest has committed to sustainability, safety for its employees, and reduced carbon emissions.

No fatality has been reported for more than five years now, and it continues to maintain this record. Newcrest achieved a low injury rate of 2.3 per million hours, a 12 percent improvement over the previous year. Its LTIFR (lost time injury frequency rate) was 0.5 injuries per million hours worked, in line with the FY20 performance.

It plans to achieve the ambitious target of net-zero carbon emissions by 2050. This is in addition to the target of a 30% cut in emissions.

2) People

In addition to safety for its employees, Newcrest emphasizes continued training and development of its workforce. It also implements diversity and inclusion in its HR practice.

Nearly 50% of appointments are internal candidates. Having achieved a 37% new hire rate for female talent within Australia during FY21 and improving female representation from 16.2% in FY20 to 17.3% in FY21, Newcrest is well on its way to becoming an inclusive company.

  • Elderly employees are included in various programs to ensure age diversity, especially in today’s digitizing world
  • Female hiring has been increased from 15% to now 23%

3) Operating Performance

This third aspect focuses on generating cash flows from operational excellence. Newcrest has been able to achieve that as it continues to meet budgetary measures and has had no major unplanned interruptions.

In FY21, it was left with $1.1 billion in Free Cash Flow, increasing 278% from last year. In the same year, Newcrest achieved the highest copper production of 142.7 million tonnes, whereas the production in FY17 was 83 million. The Cadia site achieved record-high annual copper production and a record low annual AISC per ounce for the financial year

4) Technology and Innovation

Just as AI and other technologies are changing the dynamics of other fields, mining is also constantly changing, and the firm that takes the lead in innovation becomes the leader in the market. In this regard, Newcrest intends to use AI, big data, and newer mining techniques to achieve better efficiency.

It has been studying the application of civil engineering techniques that could enable access to existing and newer mining resources.

5) Profitable Growth

To ensure sustainable and profitable growth, Newcrest continues to expand its explorations, operations, and current sites.

In this regard, Newcrest has

  • The Cadia Moly plant in its initial stages
  • The Cadia Expansion Project is in progress

Assets and Operations

Newcrest’s operating mines are located in Australia, Canada, Ecuador, and Papua New Guinea. These are

  • Cadia mine in New South Wales, Australia, with 100% ownership.
  • Tefler mine in Western Australia with 100% ownership.
  • Lihir mine in Niolam Island, Papua New Guinea, with 100% ownership.
  • Red Chris in British Columbia, Canada. Newcrest has 70% ownership in the joint venture.
  • Wafi-Golpu site in Morobe Province, Papua New Guinea. It is a joint venture with 50% ownership of Newcrest.
  • Haveiron site in Western Australia is another joint venture with 40% ownership.
  • Fruta Del Norte site in Ecuador with 32% ownership.

newcrest-miningSource 

In addition, Newcrest has 5 exploration project sites in Australia, 4 in Ecuador, 2 in North America, and 3 in Chile.

A Deeper Look Into The Financials

As of FY21, Newcrest has a cumulative (FY15-21) free cash flow (FCF) of $4.29 billion and $1.1 billion in FY21, up 278% from last year. As for revenue, it was up 17% to $4.56 billion and underlying profit up by 55% to $1.1 billion. It has a strong interest coverage ratio of 40.

Key Takeaway 5: Take A Holistic Approach To Growth

Instead of taking a mere revenue and profit-based approach to growth, Newcrest has approached its operations with a much more broad and inclusive approach. Its focus on providing employees chances to train and excel within the organization fosters a healthy work environment. Plus, the company has begun to incorporate modern technologies in its operations as well as planning to go sustainable and bring its carbon footprint to zero.

This has led the company to develop a positive public image, a skilled team, and in turn, has managed to boost its revenues and profits even further!

Digital Transformation And Digging Further

It's fair to say that digitalization has taken every industry by storm over the last few decades. While it may seem it is the service and tech sectors that are making the most of the opportunity digitalization offers, traditional industries are not too far behind as well.

Particularly, the integration of data and digitalization in the mining sector in Australia has been rapid and if Newcrest is to maintain its position locally and globally, it needs to rise to the challenges in coming years.

Smarter Mines, Smarter Outcomes

The mining industry in Australia is dominated by several large names, such as BHP, Rio Tinto, and Newcrest. Given the already expansive size of each of these firms, the competition between them doesn’t always come down to the scale of their operations. In fact, to gain a competitive edge over others, the companies tried to reduce inefficiencies, cut down costs, and find ways to boost productivity.

This is where obtaining quality data and leveraging it in the right way becomes so important for Newcrest.

From machinery and trucks to labor and reporting, there is an infinite amount of real-time data available to the company. By ensuring this information is systematically collected, reported across, and turned into actionable insights, the company can bring several key improvements to its operations. It can identify units that are not performing up to their potential, plan strategies to optimize output, and relay information to different departments for faster and more integrated decision-making.

Plus, it's necessary to make quick and uninterrupted communication possible at critical mining processes. For instance, staff working in underground minds should seamlessly relay and receive communication with teams above ground.

Also, digitalization allows teams to map out possible outcomes of certain actions to estimate risk levels and plan accordingly. For example, before beginning to drill at a certain site, machine learning models help assess the geographical impact it would have and whether the costs and risks are even worth the returns.

Thus, instead of wasting precious resources for unsuccessful ventures, digitalization will enable Newcrest to carry out very accurate cost-benefit and risk-effectiveness analysis at very affordable costs.

For this very purpose, Newcrest has started to bring Microsoft’s Artificial Intelligence (AI) and Internet of Things (IoT) technologies to its onsite operations but it still needs wider implementation to truly keep up.

Making Mining Safer and Sustainable

Undoubtedly, operating in the mining industry comes with huge risks to health, life, and damage to equipment. Moreover, there is growing concern regarding the significant environmental impact the sector has. Thus, it is necessary for Newcrest to find a long-term solution to these problems.

Interestingly, the solution to both is intertwined! Many operations that currently have to be done by sending in teams and undertaking risks can be replaced by automated tech or the teams can be equipped with smart sensors to ensure their safety. Resultantly, with more efficient ways to approach key mining tasks and the use of Remote Operation Centres (ROC) and 3D visualization technology, the environmental impact is considerably used.

However, to truly implement these methods, Newcrest needs to invest considerably in such technology and overhaul many of its existing processes. There is no time to lose; thus, the company must act quickly.

Retraining The Workforce

Along with smarter mines and better technology, Newcrest has to overcome one very essential yet difficult challenge: training its employees to adapt to the digitization process.

With a number of nearly 5000 workers in total, many of Newcrest’s staff consists of blue-collar workers who have little experience working with technology. Thus, the firm must implement retraining programs that equip its workers with skills to smoothly utilize technology in their operations. Although the transition will be steep, it should not be forced.

Key Takeaway 6: Long-Term Growth Lies In Innovation

Even though the mining sector may not have been the forerunner for digital innovation, it’s picked up pace now, and every large firm is trying to gain ground on its competitors.

Besides the usual track of expanding operations (increasing in size), digitalization presents Newcrest the opportunity to boost its efficiency and productivity of existing operations. This allows the company to generate higher profits from the same units by optimizing costs and outputs. Moreover, embracing technology leads to safer working conditions and a reduced carbon footprint.

All in all, this means that Newcrest can build a sustainable operation for the future that revolves around digitalization and meets the long-term growth needs of the business.

Growth By Numbers and Key Strategic Takeaways

When Colonel Williams laid the foundation of Newmont, his plans were simply to have a small company to manage a portfolio of mining investments. But the company was destined for a very different and very grand path. Transitioning into a full-fledged mining firm and later becoming Newcrest, it went on to become one of the largest Australian firms in the industry.

From braving through WWII to defying takeovers, its journey has been truly stunning. Most importantly, even today, by embracing digitalization in mining, the company can continue its rise towards the top and take its business to many more parts of the world!

Growth By Numbers

While Newcrest has displayed remarkable growth over the course of its entire journey, its rise in recent years is remarkable. Moreover, it signifies that the company’s trajectory for coming years is well on the path even further upwards.

Here is a sneak peek of its amazing growth in numbers in the last three years.

 

2021

2018

Revenue

$4.6 Billion

$3.5 Billion

Net Income

$1.2 Billion

$200 million

Total Assets

$14.7 Billion

$11.4 Billion

Share Price

$17.5

$15.1

Key Strategic Takeaways

From the start of the Newmont’s journey to the formation of Newcrest and ever since, the mining company has faced several challenges and roadblocks. Unsurprisingly, it has managed to overcome them every time to reach the level it has today.

We saw several strategies that proved instrumental in achieving this success for Newcrest. Now, we’ll recap some of the most defining ones that have been consistently followed throughout the company’s journey:

Look At The Bigger Picture

The initial model for Newcrest was simply based on short-term investments and returns. It wasn’t intended to take the company to a larger level and capitalize on the opportunities that were available in the mining sector.

When the management changed, they saw things differently and gradually shifted the business to a hybrid one that included actual mining ventures. This move propelled the company to global fortunes in a very short span. Moreover, from there on, it has been a consistent feature of the company’s strategy to not rely on immediate profits or losses. In fact, it always plans ahead and is, therefore, able to survive through difficult times.

Never Rely On One Revenue Source

The hybrid model was the first example of Newcrest not limiting itself to one business area. The company has constantly sought to minimize its risk by diversifying its portfolio and diversifying its sources.

Thus, not only did the company not depend on just a few minerals and metals for business, it also did not restrict itself geographically. For instance, during WWII when it faced high costs locally, it explored mining opportunities in South Africa, With time, it has ventured into multiple countries and built an impressive presence around the world. Hence, it is able to sustain localized shocks in markets and still pursue growth.

Embrace Technology To Stay On Top

Although, traditionally, the mining sector has not been the quickest to adapt to advancements in technology, now all big firms are trying to catch up and leverage data and digitalization to enhance their operations. Likewise, Newcrest also needs to bring digitalization into all aspects, including prospect searching, staff training, communication, safety protocols, and everything else.

This will allow the company to not just rely on expansionary measures for growth. Instead, by operating on the same scale, it can reduce its inefficiencies, bring down costs, and drive more outputs with lesser personnel and risk-taking. Hence, digitalization opens up the path for Newcrest to grow sustainably in the long-term foreseeable future. 

These are just some of the main strategies that the company followed. If it continues to implement them successfully to pursue growth while keeping up with changing times and embracing technology, it is safe to say the Newcrest has the potential to rise to the very top of the Australian and global mining industries!

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