With a tough year behind it and more ahead for Oceana
Gold, senior business reporter Simon Hartley talks with
brokers from Craigs Investment Partners and Forstyh Barr on
its outlook for 2014.
Copper production from the Philippines may be the saving
grace for East Otago-based Oceana Gold, as global spot gold
prices languish and increasing gold production costs keep
gouging into gold-miners' profit margins.
It appears that when Oceana reports its 2013 calendar
full-year results in mid-February, it will likely be posting
some of the sector's lowest cash costs per ounce to produce
gold; meaning retention of a larger profit margin than many
of its competitors. Oceana, being New Zealand's largest gold
producer, has been cushioned from the worst of rising costs;
being able to offset gold production costs from copper sales
from its Philippine gold-copper operations, but it has not
been immune from falling gold prices and rising costs.
It is still chasing $US100 million ($NZ120.9 million) in
cost-efficiencies and savings from its operations, mainly in
New Zealand, putting several hundred jobs under a cloud.
There have been potentially about 60 or 70 redundancies at
Macraes in East Otago, although the total has not been
Furthermore, its share price was the worst-performing on the
New Zealand stock exchange, at one point 70% down at $1.34,
but for past weeks has been trading around the $1.70-$1.80
Production costs for the major producers around the world
have been reported at $US1250-$US1300, but they are clawing
back savings, such as using higher-grade ore, to get costs
down to $US1000-$US1100.
Oceana's last market update in November forecast its average
cost per ounce for 2013 would come in between $US550 and
$US650, including copper credits from its Didipio mine.
Oceana has expectations it would end the year on a flourish
processing richer ore grades - delivering between
285,000-325,000 ounces in total.
Craigs Investment Partners broker Peter McIntyre said it had
been a ''roller-coaster year'' for Oceana's share price,
which has mirrored the volatility and softness in the spot
gold price throughout 2013.
''They have been lucky with Didipio, having those copper
offsets to cushion the [gold] production costs,'' he said.
He said management had been quick to make decisions; in
deferring work on the West Coast, at its Macraes mine in East
Otago and also exploration, which ultimately upgraded
resource estimates and mine life.
''Their operating cash costs show Oceana has been one of the
best operators in the southern hemisphere,'' Mr McIntyre
''For Oceana its all about extending the mine life of the
assets they have, and they have been nimble at that,'' he
In a surprise announcement in October, Oceana said it had
bought a Central American gold and silver exploration
company, for $12.1 million in a cashless share transaction in
El Salvador. Mr McIntyre said it was a ''strategic
acquisition'', in that Oceana had a project to look into and
the purchase would also widen its portfolio.
Gold mines in general are expected to have a ''tough''
12-months ahead, unless there was a global economic
''calamity'', which would likely cause a surge in gold
buying, Mr McIntyre said.
However, Oceana was better placed than most and if its market
capitalisation stayed above the present more than $600
million, it would provide opportunities to seek funding and
be more of an attraction for investors, he said.
Forsyth Barr broker Andrew Rooney said with gold prices at
record lows, in New Zealand dollar terms, for the past four
years at least, Oceana's share price decline was
''Even with the work undertaken to date to improve
efficiencies, the outlook for the company is going to be
dictated predominantly by the price of gold in 2014,'' Mr
The quality and quantity of gold produced from its mines are
of a high standard and the benefits of its cost-reduction
initiatives were starting to flow through.
''If the price of gold does increase through demand and a
correction in the overselling that has occurred, there will
be obvious benefits for Oceana in 2014,'' Mr Rooney said. Its
acquisition of Pacific Rim in El Salvador could ultimately
add silver production to Oceana's portfolio as well.
''[However] this will be some time away though, as there are
still regulatory hurdles to be overcome before this,'' Mr
He explained that the copper production from Didipio had also
assisted Oceana to supplement its gold output.
''Domestically, Oceana is signifying a positive intent. The
recent news of the consent award for an extension to its
existing Macraes operation being a positive for the local
region,'' Mr Rooney said.
In early December, Oceana was granted 17 consents, by a joint
hearings panel, made up of the Otago Regional Council,
Waitaki District Council and Dunedin City Council.
The 35-year consents are for the proposed Coronation pit and
waste rock stack, to the north of the mine on the Taieri
Ridge, and could extend the overall Macraes mine life by at
least a year, out to 2021.
The new pit could take about three years to develop, would
cover about 62ha and the waste stack about 105ha on farm land
which had a mixture of pasture, tussock, wetlands and
Any start date was dependent on future gold prices, the
company has said.