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OceanaGold argues for investor re-rating

Tuesday 16th November 2010

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OceanaGold argues investors are undervaluing its portfolio of New Zealand and Filipino gold-mining operations, and is predicting gold production from South Island mines of between 270,000 and 290,000 ounces in the current financial year.

In a sector where the average Economic Value-to-M&I resources ratio per ounces of gold is US$307, OceanaGold is trading at around US$135 per ounce, the company says in an investor presentation lodged with the NZX. Shares of the company have soared 163% in the past 12 months, as the price of gold advanced, and last traded unchanged at $4.63.

OceanaGold touts itself as a "100% unhedged producer" at prices of between US$555 and US$585 an ounce, and current gold reserves of 3.35 million ounces, 1.94 million ounces in New Zealand and a further 1.41 million ounces at its Didipio project, under development in the northern Philippines.  The Didipio prospect also includes 170,000 tonnes of copper.

An annual production rate of 270,000 to 290,000 ounces of gold is producing market capitalisation of around US$988 million, while peers CGA Mining and Medusa were both achieving larger market caps on smaller resources.

CGA Mining sits at US$1.1 billion market cap, with similar production costs (US$541 per ounce), and estimated 2011 gold production of 213,000 ounces.  Medusa's extraction costs are far lower at US$200 per ounce, but only 100,000 ounces is forecast to be produced next year, to support a US$1.18 million market cap.

With all mining and development costs able to be met from operating cash flows, the company argues it has "an exciting growth profile with low cash costs", and expects gold production to crack 300,000 ounces in the 2013 financial year, rising to around 350,000 ounces by 2015, with the first full year’s production from Didipio in 2013

Copper production is estimated to start at 35 million pounds in 2103, rising to 36 million pounds in 2015.

The revised outlook follows a year of exploration and mine expansion planning at Oceana's Macraes, Reefton, and Frasers Underground mines in the South Island, with US$10 million in drilling plans to extend mine life by seven to eight years. Proven and probable reserves have risen from 1.45 million ounces in 2008 to 1.94 million ounces in at December 2009.

An expanded programme for the Reefton mine is in place, with drilling in three "highly prospective" mine targets.

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