UPDATE 1-Australia's Newcrest greenlights first-stage expansion of Cadia gold mine

* Board approves $685 mln first-stage Cadia mine expansion

* New plan adds 1.8 mln gold oz, 67,000 T copper over mine life

* Top shareholder sees incremental value

* Estimated capital cost of $865 mln for full expansion

* Second-stage expansion still subject to feasibility study (Recasts and updates with more detail on expansion, shareholder comment)

Oct 15 (Reuters) - Australia’s Newcrest Mining Ltd, the country’s biggest gold producer, said on Tuesday it will go ahead with a $685 million first-stage expansion of its flagship Cadia mine in New South Wales.

Newcrest said board members had approved the initial leg of a two-stage expansion that it expects to boost production from the 2023 financial year.

The first stage will increase plant capacity to 33 million tonnes per annum (mtpa), Newcrest said. A second stage, still in feasibility, would boost it to to 35 mtpa and improve recoveries for a further $180 million.

The full expansion plan will add 1.8 million ounces of gold output and 67,000 tonnes of copper over the life of the mine, with an estimated $800 million increase in projected free cash flow, compared to a 2018 study by Newcrest.

“The capital investment has an estimated 21.5% rate of return and ensures Cadia remains a Tier One asset for many years to come,” Newcrest Chief Executive Officer Sandeep Biswas said in a statement.

The projected returns are slightly better than the output Newcrest had predicted in a pre-feasibility study released last year.

“Incrementally it’s positive,” said Simon Mawhinney, chief investment officer at top shareholder Allan Gray in Sydney, noting a greater than 20% internal rate of return.

“Given how low their gold price assumption is and arguably their copper price assumption is, it seems like a reasonable initiative and it’s slightly better than the previous outcome,” he said.

Newcrest assumes a gold price of $1,250 and a copper price of $3 a pound ($6,600 a tonne). Gold traded last at $1,492 an ounce. LME copper traded at $5820 a tonne.

Newcrest produced 2.49 million ounces of gold for the financial year ended in June and 105,900 tonnes of copper.

$1 = 1.4760 Australian dollars Reporting by Devika Syamnath in Bengaluru and Melanie Burton in Melbourne, Editing by Sandra Maler and Jane Wardell