Oceana Gold, the operator of the East Otago Macraes gold
project, is attempting to shield itself from further
gold-price falls by introducing a ''collar'' around the price
it will receive for gold over the next two years.
The company has entered into a zero cost collar hedging
programme for 208,000 ounces, partially covering production
for the next two years at the Macraes open pit and the
The programme entails a series of bought put options creating
a floor of $NZ1500 an ounce ($US1230, assuming a New
Zealand-US cross at US82c) for the gold starting this month
through to December 2015.
If the spot gold price falls below $1500 an ounce, the
company receives $1500. If the price falls to between $1500
to $1600, the company will sell gold at the spot price. If
the spot price rises above $1600, the company sells the gold
at $1600 an ounce.
Craigs Investment Partners broker Peter McIntyre said the
spot price yesterday was about $US1200 but cash costs from
Oceana's New Zealand operations, which included Reefton, were
forecast this year to be between $US1170 and $US1290 an
ounce. The company was either making very little money or it
was losing money from the project.
The company was stopping mining the low-grade ore and
concentrating on the underground operations, he said.
''The cost of getting the ore out of the ground is
increasing. The deeper they go, the more it costs.''
Putting the collar on the price was wise as there were no
indications the gold price would go up any time soon, Mr
The reasons for a lower gold price included: interest rates
moving upwards in New Zealand, putting pressure on the kiwi;
the United States Federal Reserve withdrawing support from
financial markets; economic improvement in Europe; and
growing fiscal stability around the world.
''There is no reason to hold gold. But it is not a dying
industry. Gold has been produced for thousands of years and
is still a signal of wealth. It is just the next 12 months to
two years are not looking good.''
Oceana had proved it was quick to make decisions, despite it
not being easy to deal with the ''human face'' of
restructuring, he said. Oceana was not the only company
struggling. Newcrest Mining, in Australia, had been
Australasia's premium mining company. Yesterday, its shares
were trading at $A8.48 with market capitalisation of $A6.5
billion. In November 2010, the shares traded at $A43.46.
Goldmining companies had struggled and they had not protected
themselves through hedging - exposing themselves to the spot
''When the spot price moves down without cover, it is a dark
and daunting place to be.''
European nations were large holders of gold but they had been
''dribbling'' their reserves out to meet commitments to the
European Central Bank, also affecting the gold price.
Gold usually rose on a falling US dollar, but with the Fed
easing its financial support the dollar was set to rise, Mr
In a media release, Oceana said it was planning to produce
275,000 ounces to 305,000 ounces of gold at cash costs of
$US400 to $US450 per ounce, net of by-product credits, which
include copper extracted from Didipio. The cost before
credits was set at $US750 to $US850 an ounce, which showed
Didipio was cash cost negative.
Total capital expenditure for the company was forecast to be
between $US80 million to $US100 million, significantly lower
than the previous year, reflecting the cost savings announced
during 2013 and the new Macraes plan announced on Tuesday.