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OceanaGold takes US$85.5M impairment as gold price falls

Friday 26th July 2013

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OceanaGold Corp has declared a US$70.5 million net loss in the second quarter, reflecting a US$85.5 million non-cash writedown in the carrying value of its New Zealand gold mining operations.

The result for the three months ended June 30 reflects falling gold prices, which have seen the company announce plans to reduce production from its New Zealand mines, including the mothballing of its Reefton mine from mid-2015.

That move alone will strip NZ$40 million to NZ$45 million of future capital costs from its plans, and is part of a plan to cut costs by US$100 million or more in the next 18 months.

"The group identified two indicators of potential impairment. Firstly, the trading price of the company's shares declined such that the company's market capitalization was below the carrying value of net assets," OceanaGold says in statements issued to the New Zealand, Australian, and Toronto stock exchanges, where it is listed.

"Secondly, market prices of gold declined significantly to below levels used in the company's forecasts, resulting in a decision to initiate a potential two year reduction in the previously announced mine life at Reefton."

The quarter includes the first period of full production from the Didipio gold and copper mine in the Philippines, where costs of mining were US$586 an ounce higher than returns from 11,086 ounces of gold and 5,073 tonnes of copper sold, while cash costs in the New Zealand unit were U&S$918 per ounce on gold sales of 59,620 ounces.

Total sales from all operations in the second quarter came in at US$131.2 million, up from US$95.6 million the previous quarter and US$86.7 million in the same quarter the previous year, while on the same basis production costs, depreciation and amortisation rose to US$80.4 million, compared with US$39.9 million and US$57.5 million, reflecting the inclusion of Didipio for the first time.

Earnings before interest, tax, depreciation, and amortisation for the quarter was US$42.5 million, against US$47.0 million the previous quarter and US$47.1 million in the same period the previous year.

Ebitda for the half year was US$89.6 million, compared with US$48.9 million for the first half last year.

The declared net loss for the half, after writedowns, foreign exchange losses and tax was US$63.4 million, compared with a US$3.1 million in the first half of last year.

Cashflows from operating activities were down substantially at US$9.9 million for the quarter, compared with US$21.4 million the previous quarter and US$20.9 million in the same quarter last year, reflecting a the average price per ounce of gold for the latest quarter of US$1,422, compared with US$1,632 the previous quarter and US$1,613 in the same period a year earlier.

Cash and cash equivalents on hand at June 30 stood at US$17.9 million, compared with US$96.5 million at balance date, Dec 31.

The company said in its statement it was continuing to "look for additional opportunities to optimise our business" and that "Didipio will continue to drive down our cost per ounce whilst increasing our production profile."

"With cash flows increasing over the next few years and with significant cost reductions at our New Zealand operations, the company is well positioned for the new economic environment in the gold industry," it says.

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