Mine could be keystone in cheapest-producer drive

Oceana Gold's acquisition of a South Carolina gold development mine could be the keystone in its drive to become the world's lowest-cost gold producer.

The Haile development mine was bought for $NZ996.9million in July, in a swap for new Oceana shares, which included acquisition of $C254million cash, from mine seller Romarco Minerals Inc.

While the analysis has mainly been around open-pit mining, with about $US100million ($NZ152million) already spent from a $US333million budget, the opportunities to mine underground are now emerging.

Oceana gave its open-pit Macraes site a new lease of life by developing its Frasers underground mine in 2008, and similarly, is expanding Philippines open-pit operations with a push underground.

Craigs Investment Partners collected publicly available drilling data at Haile, based on 909 drill holes done since 2008, which identified three prospective underground areas below the planned open pits.

Craigs broker Peter McIntyre said a 2014 technical report on Haile outlined the $US333million project based on estimated open-pit gold reserves of 2 million ounces.

''However, we believe the project can be much larger, with the inclusion of both open-pit and underground operations delivering 237,000 ounces at all in sustaining costs of $US510 per ounce, for 12 years,'' Mr McIntyre said.

Under the open-pit development scenario, gold production was expected to begin in about a year, but if underground plans went ahead, Mr McIntyre estimated the first ore would be delivered by second-half 2017 and full underground production would start by early 2018.

With the existing Otago and Philippines operation, plus the Waihi mine Oceana bought from Newmont in June for $132million, the combined operations could be delivering 590,000oz by 2017.

''At all in sustaining costs of $US509 per ounce, this would make Oceana the lowest-cost gold producer globally,'' Mr McIntyre said.

Mr McIntyre's sentiment echoed that of Oceana's chief executive Mick Wilkes, who in July said Haile was a ''new Oceana Gold'', as the company sought to become the world's lowest-cost gold producer.

Mr McIntyre said Oceana paid a ''healthy 73% premium'' on Romarco's last closing share price, valuing it at $US660million, which ''appeared expensive''.

''However, we believe Oceana saw considerable upside in both the underground potential and the exploration upside and was willing to pay for more than just the fair value of the open-pit project,'' he said.

He estimated going underground and increasing processing from 2.5 million tonnes of ore annually to 3.2 million tonnes, of which 1.2 million tonnes would come from underground ore, would cost an extra $US100million.

If the processing plant were expanded, he expected the open-pit return would be boosted from 2g of gold per tonne of ore to 2.7g, while the life-of-mine average grade of underground ore was expected to be 4.1g per tonne, Mr McIntyre said.

He noted Romarco had not included underground development plans for Haile, instead wanting to simplify the regulatory approvals process to focus on open pits, and to seek underground approvals once the open pits were operational.

simon.hartley@odt.co.nz

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