Oceana extends life of Waihi mine

A mine-life extension is on the cards for Oceana Gold's Macraes mine in East Otago which boasts five new Caterpillar 789D dump trucks with a 200-tonne load capacity, which the company purchased in 2016. Photo: Gerard O'Brien
A mine-life extension is on the cards for Oceana Gold's Macraes mine in East Otago which boasts five new Caterpillar 789D dump trucks with a 200-tonne load capacity, which the company purchased in 2016. Photo: Gerard O'Brien
Oceana Gold appears set to end its calendar year production on a high. ODT senior business reporter Simon Hartley and Craigs Investment Partners broker Peter McIntyre look back on Oceana’s year.

Oceana Gold has extended the life of its Waihi mine in the central North Island by a decade and remains hopeful a similar life extension is in store for its mainstay producer Macraes, in East Otago, north of Dunedin.

Consents for a new underground mine were announced this month for Waihi, which added the extra decade to its mine life, while at Macraes strong results from $7.63million of exploration underpinned the likelihood of ''many years'' of operation ahead of it, chief executive Mack Wilkes said at the time.

Formally, the mine life at Macraes remains at 2021.

While having downgraded its expected gold output earlier during the year, strong third-quarter trading prompted a gold production upgrade in October by about 15,000oz.

The record 574,606oz recorded in 2017 will not be bettered, but 2018 is expected to come in now at from 515,000oz to 545,000oz.

Oceana's four mines in New Zealand, the Philippines and South Carolina in the United States all now have either underground components or are headed underground.

From an open pit-only operation working solely from its Macraes mine in East Otago starting almost 30 years ago, Oceana has evolved into one of the most efficient low-cost operators in the mid-tier of the sector.

Most recently, Oceana had approval from councils at Waihi in the central North Island to develop a new underground operation, the Martha Project, which also includes resumption of pit mining following its closure in April 2015 because of rock falls.

The flag has also been flown at Macraes, where the Frasers underground has been in operation for several years, about the possibility of a new underground operation.

Higher gold grades from underground have consistently boosted overall gold production.

Historically, about 1g of gold per tonne of ore comes from Macraes pits, while underground it is 2g.

Craigs Investment Partners broker Peter McIntyre said Oceana's share price was trading around the 12-month target price.

That had recently been revised downward from $4.30 to $4.20.

''Oceana is consistent with other gold producers in our Australian coverage list,'' he said.

Craigs' long-term forecasts were based on gold at $US1300 an ounce, the Australian and US dollar exchange rate of US75c and the New Zealand and US rate at US63.

Mr McIntyre said key negative risks for Oceana included a delayed expansion of operations at Haile in South Carolina and macro risks, such as lower gold and copper prices and the effects of foreign exchange rates.

Positives for Oceana included better operational performance and continuing cost deflation being experienced across the industry.

He said there were also higher Australian dollar gold prices than had been forecast.

In a market update in October, Mr Wilkes said an 11-month drilling programme, of 287 test holes totalling 33.2km was ''exceeding our expectations''. The prospects at Macraes were Coronation North, Golden Point and Deepdell North, plus further drilling around the existing Frasers underground.

For the calendar year at Macraes, Mr Wilkes said that production was significantly higher than in previous years, because of the discovery
of higher grade ore from Coronation North.

''I remain confident that the Macraes operation will be an important part of the Oceana Gold business for many years to come,'' he said at the time.

Macraes employs about 650 people and in 1990 had a seven-year mine life, just two years in 2007 and a reported four years in 2013.

Oceana was still investigating the technical and economic viability of its Round Hill project at Macraes, which meant a ''potential redevelopment'' of Macraes.

Mr Wilkes said that could add an incremental 10 years of mine life to operations.

Oceana still owns the Blackwater mine near Reefton on the West Coast, which closed in 1951 after a tunnel collapse, and has a prospective buyer in the wings.

Late this month the private Australian company Tasman Mining was issued a 20-year mining permit by NZ Petroleum & Minerals.

If it decides to go ahead with mining, Tasman's owner Mark Le Messurier has an option to buy Blackwater.

Mr Le Messurier wants to develop a 3.3km tunnel, estimated to cost $US30million ($NZ44.3million), then carry out underground drilling tests to better define the gold content in the ore body. A further $US40million would be required to get into production. There is up to an estimated 700,000oz of gold still at Blackwater.

The crucial all-in sustaining costs guidance for calendar 2018, averaged across Oceana's four mines, remained unchanged in an October update, in a range of $US725-$US775, to produce each ounce of gold.

With strong cashflows during the year, debt repayments and dividends for shareholders, Oceana now only needs to keep its cash costs within the forecast range, as it moves towards its 29th year of operations.


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