Oceana Gold buys gold mine in US

Mick Wilkes.
Mick Wilkes.
Oceana Gold has surprised the market with a cashless purchase of a Toronto-listed US development gold mine in South Carolina, with potential to boost gold production to more than 500,000 ounces of gold a year.

The acquisition of Romarco Minerals Inc, which had a market capitalisation of $C856million ($NZ996.9million), is entirely based on issuing new Oceana (OGC) shares in exchange for Romarco shareholders' shares, with no cash component.

OGC shares in the market will rise from 303.5 million on issue to 603 million.

The new number of OGC shares means there could be dilution in share value for OGC's existing shareholders, who hammered its shares down 15.5% to $2.66 following yesterday's announcement.

They closed the day at $2.68.

OGC chief executive Mick Wilkes dubbed the asset addition the ''new Oceana Gold'', predicting OGC was becoming the ''lowest-cost gold producer globally''.

He forecast Oceana would be producing more than 540,000oz in 2017, when Romarco's Haile mine began production on 2017, meaning 75% of its gold would come from combined New Zealand and US mines.

Craigs Investment Partners broker Peter McIntyre said the sale of OGC shares yesterday represented some investors reducing their risk position and taking cash now, in case the almost doubling of share numbers diluted overall value.

Oceana has a total $C317million cash on hand, from $C63million it held plus Romarco's $C254 million cash.

On the question of benefits to Oceana shareholders, Mr Wilkes said the Haile project represented a ''high-quality development asset'' that was ''one of the best gold development assets currently owned by a junior''.

It is just seven weeks since OGC completed its $132 million purchase of Newmont's Waihi gold mine in the central North Island.

Aside from OGC's Otago and West Coast mines at respectively Macraes and Reefton, it operates a producing gold and copper mine in the Philippines, has a 14.9% stake, for $18.5 million, in a Nevada gold exploration company, and a separate $12.1 million stake in an El Salvadorean gold and silver exploration company.

OGC said Romarco's Haile open pit mine project was ''one of the highest grade open pit gold development projects in the gold sector'', with gold reserves at 2.06 grammes of gold per tonne of ore.

Haile was currently funded and in construction, with $US63 million spent as at March, and had ''moderate initial total capital cost of $US333 million''.

It is estimated to be one of the lowest cost operating gold projects, at $US414 per oz for ''all in sustaining costs'' during year-one production, in 2017.

OGC shares were placed on a trading halt on Thursday morning, and Toronto being its principal listing, the company announced the Romarco purchase overnight, New Zealand time.

The deal is subject to 66% of Romarco shareholders accepting the deal, in a vote in either late-September or early-October.

• For its trading for the quarter to June, OGC said it was ''well on track'' to deliver its earlier calendar year production guidance, of between 295,000oz and 335,000oz and up to 23,000 tonnes of copper.

Revenue for the quarter was down $US3.8 million on the first quarter, at $US125.4 million, with earnings before interest and tax depreciation and amortisation down about 33%, to $40.1 million.

After tax profit fell from $US24.4 million to book a $US1 million loss for the quarter, which included an unrealised loss of $US15.4 million in undesignated hedging.

simon.hartley@odt.co.nz

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