Oceana Gold closes out loss-making hedges for weak first-quarter result

Friday 30th April 2010

OceanaGold has taken a one-off C$73 million hit to its balance sheet, using the bulk of the C$86.3 million in recent equity-raising to close "out of the money" foreward hedge contracts that had begun to weigh subtantially on the Australasian goldminer's results.

Also hitting the results for the three months to March 31, released this morning, were expected reductions in production owing to mining sequencing, and unanticipated repairs to processing equipment at the Macraes mine.

The company has been selling all gold into the spot market since April 1 and expects a much "cleaner" earnings profile now that its hedge position has been unwound. Oceana shares rose 2.35% to NZ$3.48 in trading on the NZX this morning.

The company reported a US$1.8 million net profit, including US$16.2 million unrealised gains on undesignated hedges, compared with a US$9.1 million profit for the same period a year earlier, which included unrealised losses on undesignated hedges of US$2.3 million.

That yielded earnings of 0.1 US cents per share (6 US cps in the same period a year earlier). Earnings before interest, tax, depreciation and amortisation were US$8.5 million, compared with US$31 million in the same quarter a year earlier.

Negative cashflow from operations of US$10.3 million for the quarter compared with a cash-positive US$23 million in the March quarter of 2009.

Gold sales for the latest quarter were down substantially at US$48. million (US$55.2 million), representing 65,041 ounces, down 22.3% on the same quarter a year earlier, caused by lower recoveries because of mining sequencing at the Macraes mine, as well as unexpected repairs to the Macraes autoclave equipment.

"Revenue was also impacted by a decrease in the average price received as 78.4% of production was sold into 'out of the money' hedges and call options," commentary on the accounts said. "In Q4 and Q1 approximately 35% of production was delivered into hedges."

To end this problem, Oceana used C$73 million from the proceeds of a C$86.3 million equity raising to close out all remaining undesignated forward hedge contracts for gold sales on March 31, as well as undesignated gold call options outstanding at that date. It continues to hold undesignated gold put options over 61,500 ounces with an average price of NZ$1,000.

As a result of the hedge impact, the average gold price received in the quarter decreased to US$743 million, while cash costs of production per ounce were high at US$551, because fixed costs remained stable despite variability in mining output.

The company said it was making good progress increasing per tonne gold recoveries from its New Zealand mines, with 2.63 grams per tonne achieved at Reefton (2.06 g/t a year earlier), and 1.22 g/t at Macraes, which is up slightly on Q4 average recoveries, but well down on a year earlier when recoveries were running at an average 2.28 g/t.

Businesswire.co.nz

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