* Newcrest says no longer seeking sale of Telfer gold mine
* Will invest in mine extension
* Stock boosted by return to profit in fiscal 2015 (Adds comment, details, share move)
By James Regan
SYDNEY, Aug 17 (Reuters) - Newcrest Mining NCM.AX said it has called off the proposed sale of its Telfer gold mine in Australia, and will instead invest to extend the mine's operations as it seeks to maintain the company's overall gold output this year.
Newcrest, which posted a net profit of A$546 million ($403 million) for the year to June 30 after a A$2.2 billion loss a year ago due to writedowns at its Papua New Guinea operations, said there had been considerable interest in Telfer.
However, chief executive Sandeep Biswas said a combination of lower labour costs and a weakening Australian dollar had worked in favour of retaining the mine, which was once it's flagship operation.
"We've made the decision to retain Telfer," Biswas said on a media call. "We've achieved good returns in the past 12 months."
The board had approved investment of A$46 million that would allow production levels at Telfer to be roughly maintained.
Newcrest, Australia's biggest independent gold producer, said in February it was open to selling Telfer and appointed Bank of America Merrill Lynch (NYSE:BAC) to advise on any possible sale.
Australian gold miners have been chasing M&A deals, defying worries that last month's dramatic slide in bullion prices would extinguish momentum in the sector, buoyed by a fall in the Australian dollar.
Biswas said heat in the sector had driven up valuations for assets on the market and Newcrest was more focused on growth through exploration.
The miner also planned to switch to reporting its financial results in U.S. dollars this year, in part reflecting its push to operate more mines outside of Australia and also to simplify its accounts as it holds U.S. dollar debt.
Newcrest, which produced 2.42 million ounces of gold in the year ended June 30, 2015, said it expects to mine 2.4 million to 2.6 million ounces this year from its operations in Australia, Papua New Guinea and Africa.
Shares in the miner rose as much as 5.9 percent, before easing to be up 4.5 percent up at A$11.44 by 0341 GMT.
Telfer is Newcrest's third largest producer behind its Lihir mine in Papua New Guinea and Cadia lode in eastern Australia. The company set guidance Telfer at between 470,000 and 520,000 ounces in fiscal 2016.
The Telfer investment would initially extend the project's open pit mining until late 2017, Biswas said.
($1 = 1.3569 Australian dollars)