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30/4/2018 — Gold
Cost pressures ahead for OceanaGold?
By Simon Hartley

OceanaGold Corporation (TSX & ASX: OGC) has booked decreased quarter-on-quarter revenue and profit, following a 24.3% decline on gold sales.

As forecast for its March quarter trading, gold production declined 24.4% from 166,211 ounces to 125,646 oz, while the crucial all-in sustaining costs (AISC) to produce an ounce rose 41.6% from $US564/oz ($NZ798) to $US799/oz ($NZ1131), OceanaGold chief executive Mick Wilkes said.

The quarter-on-quarter increase in unit costs was expected and related to lower gold sales.

“Unit costs are expected to decrease as the year progresses,” he said.

The AISC average profit margin of gold, spread across all its four mines, was $US541/oz. Gold sales for the quarter declined 24.3%, from 168,586 oz to 127,473 oz.

Copper production, from Didipio in the northern Philippines, rose almost 5%, from 3,687 tonnes to 3,889t, while its price eased from $US3.17 per pound to $US3.03.

Revenue for the quarter fell from $US246.1 M in the December quarter to $US196.7 M, earnings before interest and tax declined from $84.2 M to $US45.8 M and after-tax profit was down almost 50%, from $US88.6 M $US44.5 M.

“Operationally, gold production was generally in-line with our expectations, despite a severe cold weather event that impacted the Haile operation early in the year,” Wilkes said.

“In the Philippines, ramp-up of the underground operations is progressing to plan,” he said.

Craigs Investment Partners broker Peter McIntyre said the quarter provided “a reasonable result,” but with concerns about rising production costs.

He said both Haile in South Carolina and Didipio in the Philippines were doing well, predicting Haile would become Oceana's flagship operation.

Despite the rising costs, which are expected to wane in the second half, McIntyre said Oceana's balance sheet was in “solid shape.”

Wilkes highlighted a “major milestone” had been achieved at Waihi, in the central North Island. OceanaGold had begun the consenting process which could boost mine-life by a decade with its Martha Project; going underground adjacent to the historic pit which has been shut down by slips since April 2015.

“We've received positive feedback and response in our (consenting) engagements with the community and this close engagement will continue during the permitting process,” Wilkes said.

OceanaGold's debt facility stood at $US230 M, of which $US200 M was drawn down, while net debt decreased by 12% to $146.4 M.

Mick Wilkes said: “We continue to deliver earnings before interest, tax, depreciation and amortisation margins at or near the top of the gold mining industry, while delivering another strong return on invested capital for the quarter.”

The company's cash balance increased to $US89.1 M, which excluded $US71.4 M in marketable securities.

Wilkes said exploration continued to be a major focus, with extensive drilling programmes at Haile, in South Carolina, and Waihi in particular.

The company maintained its guidance to produce between 480,000 oz to 530,000 oz of gold and 15,000t to 16,000t of copper in calendar 2018, with AISC in a range of $US725/oz to $US775/oz.

*Simon Hartley is senior business reporter and assistant chief reporter for the Otago Daily Times.

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