Earlier this week, Oceana-Gold, which has gold projects in East Otago and Reefton, announced the capital cost of its Didipio project, in the Philippines, had more than doubled to $US320 million ($NZ418.3 million).
"While we recognise this is a significant increase, Didipio is one of the highest grade gold-copper porphyries in the world today and this remains a very robust project.
Payback on the project is just three years using an $US800 per ounce gold price and a $US3.50 per pound copper price.
"The recent fall in our share price certainly does not reflect the strong financial returns from the project, even after allowing for the higher capital costs."
Didipio would have a strong impact on OceanaGold's production and operating cash flow for at least 15 years, Mr Orr said.
The share price fell 38% on Wednesday after the market digested the news but recovered slightly on Thursday and yesterday.
In a statement to the ASX, Mr Orr said that in 30 years in the mining business, he had never seen such an inflationary environment.
OceanaGold was fortunate to have an "economically robust" deposit at Didipio and it was still an attractive and important project for the group.
The key was to get Didipio commissioned as soon as possible.
The group had already invested $US40 million in the project and had about $US105 million in cash on hand, he said.
"We are well down the track on some debt financing options and any needs over the debt financing will be equity, with priority given to our loyal shareholders."
Didipio was the key pillar of the group's growth strategy and set the stage for it to grow in Australia and New Zealand and further establish the company as an international intermediate gold producer.
Didipio would increase OceanaGold's production of gold to between 300,000 ounces and 400,000 ounces per year and add revenue from bewteen 15,000 tonnes and 20,000 tonnes of copper per year, Mr Orr said.
Despite the increase in capital costs, Didipio still generated strong returns and significant cash flow.
In the mine's first full production year, probably 2010, the company was forecasting operating cash flow of $US200 million.
Metal prices had nearly doubled since the last feasibility study in 2006.
In comments about the New Zealand operations, Mr Orr said the group had commissioned two new mines in the past 18 months.
"I think it is safe to say there are few companies our size that have achieved the same."
Reefton, which was commissioned last year, was performing above expectations, he said. Throughput rates were exceeding design.
At Macraes, progress was being made on increasing recovery at the process plant, and also increasing the rock movement from the open pit. Grade from the Frasers' underground mine was improving.
Costs for the last quarter came in at $US496 an ounce, slightly higher than expected, he said.
Sixty-five percent of the increase year-on-year was attributable to the strengthening of the New Zealand dollar against the US dollar.
"The good news is that the weakening US dollar means a higher gold price and our margins grew by 100%."
Cash costs were lifted to reflect higher energy costs, plus the stronger NZ dollar.
OceanaGold was continuing with an active drilling programme at Didipio and Macraes. At Reefton, the company was working to convert resources to reserves.
"We have consistently said that our strategy is to bring on the Reefton and Frasers' underground projects in New Zealand and use those as a base from which to expand the business throughout Australasia.
"Didipio is the next leg of that expansion and by the end of 2009 we expect to be one of the premier Australasian-focused gold producers.
"Our focus right now is on constructing Didipio, which will help us establish a solid platform in one of the most prospective countries for copper-gold porphyry deposits."
