Oceana tips 'strong finish' to year

Oceana  trucks  work at the company's Macraes mine in East Otago earlier this year. Production...
Oceana trucks work at the company's Macraes mine in East Otago earlier this year. Production from all Oceana's gold operations for 2013 is predicted at between 285,000 and 325,000 ounces. Photo by Craig Baxter.
After a troubled start to its calendar financial year East Otago-based Oceana Gold is reaping benefits from cost savings and predicting a ''strong finish'' to the year, underpinned by better-than-expected copper production from ramping up its Philippines gold-copper mine.

The expected result should boost Oceana's share price, which has been flagging during the year.

Oceana's Didipio mine in the northern island of Luzon is far from the swath of devastation cut by Typhoon Haiyan in the central Philippines late last week, but the company sent its Didipio emergency response team to assist with recovery and had contributed to the Unicef Children's Emergency Appeal, chief executive Mick Wilkes said in a market update this week.

After a typhoon in the Luzon region in August, Oceana provided relief to 1200 families, Mr Wilkes said.

Strong copper production growth at Didipio allowed Oceana to recently increase its guidance for calendar 2013, and the company expected about 2000 tonnes more than previously thought, bringing the total to 20,000 tonnes. Production from all gold operations was predicted at between 285,000 and 325,000 ounces. Copper sales offset the cost of gold production across the company's operations, which in the face of wavering global prices was crucial to maintaining profit margins.

Mr Wilkes said with global spot prices ''under pressure'', the company was pleased to have initiated a $100 million cost-saving programme across New Zealand operations and subsequently achieve ''significant reductions'' in costs.

Higher gold grades across all operations were underpinning a ''strong quarter'' to December, meaning strong cash flows, which would be used to pay debt of $US40 million ($NZ48.3 million).

''With production up and cash costs down, a strong finish to the year looks to be expected,'' Mr Wilkes said.

Craigs Investment Partners broker Peter McIntyre said the time spent developing Didipio was beginning to pay off, enabling Oceana to apply the copper credits across all its gold costs.

When the gold price was around $US1200 per ounce, it was critical for the larger producers to keep production costs below $US900. Oceana was expecting year-end production cost averages of around $US550-$US650 an ounce.

With international funding for producers drying up, Oceana's targeting of debt repayment using its copper-boosted cash flow was a positive move.

Forsyth Barr broker Andrew Rooney said recent months ''had not been easy'' for Oceana.

Issues included the drop in gold prices, the resultant need to remodel mine plans, putting Reefton into a care and maintenance phase for two years and deferring the Macraes cutback.

''However, there has been much commentary recently on the overselling that has occurred in gold,'' Mr Rooney said. An example is the divergence in relativity between the Federal Reserve balance sheet and the price of gold.

''Given this perceived value gap and the strong demand for gold from Asian countries, there is every chance that the price of gold may recover,'' he said. This combined with the cost reductions already undertaken by Oceana, the bedding-in of Didipio operations and the availability of higher grade ore in New Zealand, ''it does position Oceana well for the December quarter'', he said.

Aside from the proposal to mothball Reefton on the West Coast in 2015, which would affect about 260 jobs, and deferring the cutting back of topsoil at Macraes, other savings had been realised as a result of recently negotiated employment contracts, reduced contractor rates and wage-freeze agreements with employees, he said.

Oceana said recently ''less than 10%'' of New Zealand staff were affected by voluntary or enforced redundancies, indicating the loss of between 70 and 90 staff.

Despite several emails, the company has not confirmed the exact number, saying yesterday from its Melbourne head office that the figure of 70-90 jobs was ''too high''.

- simon.hartley@odt.co.nz

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