OceanaGold says Didipio project has a one-to-two year payback

Monday 10th October 2011 1 Comment

Macraes goldfield operator OceanaGold Corp.'s Didipio gold and copper project in the Philippines has a “very robust” capital payback of one to two years, based on estimated capital costs of US$185 million, according to managing director Mick Wilkes.

He told companyinsight.net.au the gold operating costs for the first six years at Didipio will average negative US$79 an ounce with the copper prices at US$3 per pound.

“That also coincides with a tax holiday, making the project extremely attractive in the early years,” Wilkes said. “The reason the cash operating cost is so low in that period is because the copper production is higher with grades being higher in the shallower sections of the ore body.”

Didipio will average 18,000 tonnes a year of copper in its first six years and, because the company has delayed underground mining and will concentrate on open pit, operating costs will be lower.

“It means the operating cash flow at spot prices in the early years averages US$150 million per annum after royalties,” Wilkes said.

Didipio will transform the company from being a New Zealand-based gold miner into a low cost multi-national gold and copper miner, he said.

“Our cash costs will fall from around US$850 an ounce to around US$450 an ounce. That will make OceanaGold very competitive to our peer companies.” The spot gold price is currently US$1,652.20 an ounce.

Construction at Didipio began in June and is going to plan, Wilkes said. The major risk to the project is delays from weather, with the Philippines having experienced several typhoons this year.

The company has about US$190 million in the bank and has spent about US$30 million so far on developing Didipio and its positive cash flow from New Zealand is funding its exploration and capital projects. It expects to repay its convertible notes maturing at the end of 2012 from cash flow, Wilkes said.

OceanaGold recently revised down its New Zealand production estimates for calendar 2011 to between 255,000 and 270,000 ounces of gold and increased its cash costs estimate to between US$850 and US$890 per ounce from US$645 to US$685.

Wilkes said this reflected “some issues” at its Reefton mine where productivity hasn't been up to expectations. It also reflected the appreciation of the New Zealand dollar against the US dollar.

“We were doing our budgets at around 70 US cents at the end of last year whereas the New Zealand dollar actually reached around 88 cents in July. That has an impact on our cash costs because we report them in US dollars, but around 70% of actual costs are in New Zealand dollars.”

Wilkes said OceanaGold is spending US$10 million this year and US$15 million next year, mostly on exploring the Reefton gold field.

OceanaGold shares, which are dual-listed on both the ASX and NZX, recently traded at $3.10 on the NZX, up from as low as $2.34 in August but well down from the $5.20 peak in December.

BusinessDesk.co.nz

Comments from our readers

On 11 October 2011 at 5:57 pm nevvy said:

As Homestake Mining was in the U S stockmarket during the great depression, (the best performing share)so will Oceana Gold be to the New Zealand stockmarket in the years ahead imho.