Broker lifts Oceana Gold forecast 1%

Peter Young
Peter Young
Oceana Gold's production guidance is encouraging in that it shows its cash costs are falling, Forsyth Barr broker Peter Young says.

The East Otago and Reefton gold-miner last week issued new guidance and confirmed it had raised equity capital.

In the changes, Forsyth Barr had lifted its 2013 full-year operating earnings forecast 1% to $US274.3 million ($NZ334.6 million) and reduced the target share price by NZ70 cents per share to $NZ4.40. It left its buy recommendation unchanged.

Mr Young said the production guidance provided by the company was close to expectations and resulted in only minor changes to the Forsyth Barr forecasts.

Gold production was expected to be in the range of 285,000 ounces to 325,000 ounces and copper production between 15,000 tonnes and 18,000 tonnes.

''We have lowered our New Zealand gold production forecast by 11,000 ounces to 245,000 ounces as, given Oceana Gold's recent track record with guidance, we want to take a more conservative stance.''

However, Forsyth Barr had raised its copper production forecast so that it was in line with Oceana Gold's Didipio gold production in the Philippines, he said.

Oceana Gold forecast cash costs of between $US650 and $US850 an ounce - assuming a US80c cross rate and a $US3.40-a-pound copper price.

''In our view, the exchange rate assumption is optimistic based on current spot rates, and the copper price is conservative. Given the uncertainties with the first year of Didipio production, Oceana Gold had indicated it will reissue guidance at the end of the first quarter.''

In a slightly curious move - in that it was not strictly speaking necessary - Oceana Gold raised $C90 million ($NZ110.5 million) by issuing 30 million shares, Mr Young said. The decision to raise extra equity had seen Oceana Gold reduce debt levels, bringing it more in line with its peers, none of whom had significant debt.

In the past month, the gold price had fallen from $NZ2100 an ounce to $NZ2000 an ounce. That had seen gold index and market multiples fall 10%. The equity raising had also had a dilutionary effect. Those factors had combined to cut Forsyth Barr's target price to $4.40, although that was still a return of more than 30%, he said.

Oceana Gold continued to trade at a 25% discount to its peers because of high cash-cost production. Gold cash costs were moving lower because of Didipio copper by-products credits. Mr Young expected the company's discount to its peers to close during 2013.

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