Oceana to 'mothball' Reefton gold mine

Oceana Gold will ''mothball'' its Reefton open pit mine by mid-2015 because of the declining gold price.

The mine employs 260 staff. Reefton has averaged more than 75,500 ounces of gold annually during the past three years, but its predicament reflects the cost-cutting measures gold producers will be making to survive the past year's 33% global spot price plunge - diving below a more than three-year low to about $US1200 yesterday.

An upturn in the spot price of gold could prompt Oceana to resume development at Reefton as early as 2014, but the cost of producing the gold concentrate is the crucial decider.

The Reefton mine's life will be cut by two years, which under the revised plan means savings in capital budget expenditure of about $40 million to $45 million during the next two years.

Oceana, whose share price is down almost 60%, said last week Reefton's mine life was under review, confirming yesterday it would be reduced by two years and the mine put into ''care and maintenance'' by mid-2015, Oceana chief executive Mick Wilkes said.

''Mining operations must generate sufficient risk-weighted returns in order to remain sustainable and, unfortunately, the decline in the gold price over the past two months has eroded much of the profitability at Reefton, which has led to this revised plan,'' Mr Wilkes said in a market statement yesterday.

Oceana shares rose on the news, lifting 4.5% from the more than three-year low to trade around $1.40 in New Zealand yesterday.

Further job losses on the West Coast will come as a bitter blow to local communities. Solid Energy axed about 220 coal jobs there, and its viability remains under a cloud, while Westport coal mine developer Bathurst Resources is unable to move to full production because of multiple court challenges by environmentalists.

Spot gold prices continued to decline this week, down about 6%, or $US75 ($NZ96.50), during the past two days to $US1203 ($NZ1548) yesterday.

Craigs Investment Partner broker Peter McIntyre said plans to put Reefton into care and maintenance was a smart move, to cushion Oceana from the negative risks ahead, given gold's declining price.

''Doing nothing was not an option. This is a smart move. It's proactive leadership by management to continue operating [elsewhere] in what is a bear market for gold,'' Mr McIntyre said.

Fosyth Barr broker Peter Young said the gold price plunge led to ''mothballing of the mine in mid-2015''.

Mr Wilkes said since Reefton's inception in 2006, there had been about $NZ45 million in direct and indirect economic benefits for the West Coast from the Globe Progress mine.

For the next two years, from mid-July, Oceana had entered a hedging programme covering an estimated 115,650oz of Reefton gold production, guaranteeing it a minimum $US1248 per oz to a maximum $US1394.

''This was financed through the sale of an equal number of sold gold call options creating a ceiling over the same period with a strike price of $NZ1787 ($US1394) per ounce,'' the company said.

Oceana would maintain its access arrangement with the Department of Conservation through to 2019 and plant and permanent equipment would be left in place during the period for care and maintenance.

It would start the rehabilitation of areas and would continue evaluating the underground potential of Globe Progress, while a technical study was under way on the Blackwater mine and, if ''positive economics'' were shown, it could begin in 2014 or 2015.

- simon.hartley@odt.co.nz

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