Global spot gold market sales cushion Oceana's escalating costs

Oceana Gold's 100% selling on the global spot gold market has proved successful, with massive gains in its profit margin cushioning the escalating costs of producing gold from Macraes in East Otago and Reefton on the West Coast.

Oceana shares, which hit a record $4.75 last month, traded up 2.5% to $3.69 following yesterday's financial and activities reports.

Triple-listed Oceana yesterday reported its second quarter and half-year results to June, highlighting a 226% increase in profit margins to $US627 per ounce, having successfully raised more than $US100 million to purchase its forward gold hedging contracts and sell all gold on the spot market since April 1.

However, Oceana's costs to produce each ounce crept up from $US822 in the first quarter to $US841 in the second, while a year ago for the first half overall costs were $US532 compared with $US831 for the last quarter to June 2010.

Oceana chief executive Paul Bibby said the results demonstrated a "solid outcome", with the expectation of further production increases in the second half of 2010.

"This was the first quarter in the company's history where Oceana Gold has been hedge-free and 100% exposed to the spot market.

"This has significantly increased our ability to strengthen the balance sheet and has provided the flexibility to direct investment back into the business, as demonstrated by the recent announcement to increase the exploration budget at Reefton," he said.

Craigs Investment Partners broker Peter McIntyre said increasing operating costs were overshadowed by positive gains in Oceana being able to sell 100% on the spot market - which Oceana had said in the past could reap it $US70 million to $US80 million on the bottom-line per annum; with prices above $US1100 per ounce.

Oceana raised production from the first quarter to second from 65,291oz to 67,541oz; tallying 132,832oz for the half to June, but down 16% compared with the 158,277oz produced last year.

"As they have said, they are digging through more dirt for less gold at the moment," Mr McIntyre said.