Low-cost gold production by Oceana Gold in its new
Philippines mine is buoying operations and paving the way to
slashing debt in the year ahead.
Sales of copper from Oceana's Didipio gold-copper mine in the
northern Philippines are offsetting the high cost of gold
extraction, whereas gold-only extraction in New Zealand is
far less profitable.
New research by Craigs Investment Partners looks at the
possibility the Macraes mine operations in East Otago and
Reefton, on the West Coast, will close by the end of 2017,
which has been signalled as a possibility by management.
Craigs broker Peter McIntyre said while management had
indicated the mines' potential closure, that scenario was
dependent on gold prices, continued cost savings and new
areas under exploration, such as plans for the Coronation
open pit at the Macraes site.
''Didipio in the Philippines is a new, long-mine-life,
low-cost operation which generates strong free cashflow and
underpins plans to pay debt off the balance sheet,'' he said.
While Oceana has made more than 200 staff and contractors
redundant from Macraes and Reefton operations in recent
months, it has reiterated that the New Zealand mines' futures
and viability are closely linked to the price of gold.
Mr McIntyre said Macraes and Reefton mines operated at a
higher cost than Didipio, but Oceana had recently put in
place a hedging contract to protect its profit margins in New
Zealand, as the operations wind down.
He estimated free cashflow from Macraes and Reefton combined,
after expenses and costs, would total about $US180 million
($NZ204 million) by the end of 2017.
Between the ''persistently high'' New Zealand dollar and a
gold price plunge last year, Oceana had revised the mine life
of its New Zealand locations.
Reefton's mine life was down by two years, to be mothballed
by late 2015, and the already 24-year-old Macraes mine's life
was cut by three years, with Frasers underground to close
mid-2015 and open pit operations by late 2017.
''We expect 2014 will represent the peak production year for
Oceana,'' Mr McIntyre said.
Since Didipio opened in late 2012, Mr McIntyre said, it had
to date produced 97,000oz of gold and 30 tonnes of copper, at
a cash cost of negative $US856 ($NZ972).
''There's strong cashflow being dedicated to repaying debt
and to reduce its gearing from 20% to 15% by the end of this
year,'' Mr McIntyre said.
Oceana was part way into installing a $US7 million plant
extension at Didipio.
When that was combined with using electricity from the
national grid, instead of running generators, by mid-2015, it
was expected to cut operating costs by about $US10 million a
''Didipio is one of the world's lowest-cost operating gold
assets,'' he said.
During calendar 2014, Mr McIntyre said, forecast cash costs
were in a negative $US725-$US650 range, in part from the
strong copper by-product credit and the mine's low-cost base.
While Oceana's share price was poor for most of the last
calendar year, during recent weeks it has been well up on
last year, in a range of $3.36-$3.75.
Mr McIntyre said Craigs' 12-month price target for the stock
was $3.20, and maintained a ''hold'' recommendation, given
its ability to grow business in existing operations or by
acquisition of other companies, such as its $12 million
purchase of an El Salvadorean gold exploration company last