Miner tips $30m boost to profits
OceanaGold’s 2010 bottom line is forecast to be boosted by about $30 million at current gold prices due to the miner’s decision to buy back its hedge cover from March 31 this year.
The company’s investor relations vice-president, Darren Klinck, was in the South Island last week visiting operations on the West Coast and said there had been no impact on OceanaGold’s mines from the recent 7.1 magnitude earthquake.
OceanaGold had paid US$72m (NZ$99m) to buy back its hedge book at the end of March. It was making the $30m bottom-line prediction based on the fact that it now made extra upside on gold prices above NZ$1565 an ounce.
The company ran a C$85m (NZ$113m) capital raising to buy back the hedge book.
“Now we’re completely 100 per cent unhedged. We closed the book out at an average of NZ$1565 per ounce and the gold price since then has been as high as the high $1800s,” Klink said.
With gold price now around NZ$1770 an ounce, it was making $200 more an ounce than it would have under the hedging arrangement. That figure was multiplied against an expected production of 150,000 non-hedged ounces to give the $30m boost to the bottom line.
The NZX-listed company was forecasting gold production of 270,000 to 290,000 ounces in the year to December 2010.
Klinck said international institutional investors were more interested in gold companies in a non-hedged position. The stock now also had more liquidity.
OceanaGold was also aware of a lot of corporate merger and acquisition and takeover activity within the global gold miner sector.
Already Newcrest mining had merged with Australian producer Lihir Gold to create the world’s fourth-biggest gold company. Newcrest would produce in the order of three million ounces annually on an unhedged basis.
“I think companies are quite bullish on gold and looking to increase production and increase resources … the underlying sentiment is you could see continued merger and acquisition activity here as we move forward, provided the gold market remains strong,” Klinck said.
Asked if OceanaGold could be in merger talks or be a merger target of another company, Klinck said the company was focused on its own growth plans.
“As far as the M&A [merger and acquisition] goes, from a company perspective you can’t spend your time looking in your rear-view mirror. You’ve always got to look forward and run hard. That’s what we’re doing.”
The company was focused on expanding its own resource base and had 10 drill sites working in the South Island. It had in excess of 25,000 metres of drilling planned in New Zealand in 2010 both at its Macraes open cut & Frasers underground mine in Central Otago and at its Reefton open cut mine on the West Coast.
“We’ll spend between US$9m and US$10m this year on exploration. So that’s a very significant investment.”
With a market capitalisation of around A$740m at the end of last month, OceanaGold was also evaluating options for its Philippines-based Didipio gold and copper project.
It was talking to potential joint venture and strategic investment partners, and in 2007-2008 spent around US$80m on initial mine work.
“Unfortunately the capital cost to complete that project blew out of control this is when oil was going to US$150 a barrel … we had to lock it down and put it on care and maintenance. We’ve now gone back and looked at it.”
The miner has estimated reserves of 1.94 million ounces of gold here, and 190,000 tonnes and 1.65 million ounces of gold in the Philippines.