Newcrest Mining (ASX: NCM, OTC: NCMGF) said today it has approved development of the Cadia East gold and copper project near Orange in central west New South Wales that will become Australia's biggest underground mine.
Cadia East's development was expected to cost A$1.91 billion (US$1.77 billion) with production expected to begin in 2013.
However, the market was ripe with rumours yesterday and this morning that Newcrest would sweeten its spurned bid for another major listed Australian gold miner Lihir Gold Ltd (ASX: LGL) which operates the big Lihir Island mine in Papua New Guinea, a gold mine in Cote D'Ivoire and another in Queensland.
While there was no such announcement by late trading in Australia today there are many market pundits convinced Newcrest will make an increased bid for Lihir Gold, particularly as it had been given access to key mining data and that it sees a strong alignments, particularly with its PNG assets held with Harmony Gold, and the big Lihir Island mine.
The Cadia East orebody is the blueprinted new mine for Newcrest in the Cadia Valley and is one of the world's largest gold deposits, comprising a mineral resource of 2,347 million tonnes containing 33.2 M oz of gold and 6.59 Mt of copper. There was also an ore reserve of 18.7 M oz of gold and 3.16 Mt copper.
Cadia East will "underpin production from the Cadia Valley for at least the next 30 years."
Newcrest said the underground mine would be developed adjacent to the existing Cadia Hill open pit mine, and will take in an expansion of the existing Cadia Valley processing plant capacity from 24 Mtpa to 26 Mtpa.
The project will enable production from Cadia Valley operations to increase to a range of 700,000 to 800,000 oz of gold and 75,000 to in excess of 100,000 tonnes of copper per annum over the first 10 years.
At the peak of construction, a workforce of about 1,300 will be required.
"The project will also underpin Newcrest's strategy to remain a low cost gold producer, with production costs well within the lowest quartile of global cash costs," the company said.
Cash costs for Cadia East over the first 10 years of production were expected to be below $A100/oz ($US92.70/oz) with a total production cost of less than $A250/oz ($US232/oz)
Newcrest's chief executive Ian Smith said Cadia East was expected to be funded from internal cash flows with the majority of the capital expenditure to be incurred by the end of calendar 2012.
"This investment will enhance Newcrest's portfolio of long life, low cost assets and is a key part of Newcrest's organic growth strategy to increase annual production by at least 40% to 2.3 M oz by financial year 2014.
Smith added that in relation to the "proposed combination" with Lihir Gold, announced just prior to Easter, the Cadia East development "demonstrates the strength of Newcrest's organic growth pipeline and the growth options available to the company" - whether or not the Lihir proposal proceeds.