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Gold offers no bonanza for producers

By Nick Stride

Friday 28th November 2003

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The surging gold price has attracted an influx of new explorers but has made little difference to the two local producers.

In recent weeks gold has rallied to just below $US400, extending a comeback from a four-year bear market that saw the metal hit a low of $US253 in November 1999.

The recovery has attracted overseas explorers, mainly from Canada, to set up joint ventures with existing tenement holders.

"There's been quite a bit of activity because the incentive to explore is driven by the [US dollar] gold price," GRD Macraes New Zealand chief operating officer Len Jubber said.

"But they tend to sell back to the locals because mining infrastructure is a big barrier to entry."

New Zealand's precious metals industry now consists of Australian-based GRD Macraes' South Island operations and US company Newmont Mining's gold and silver production at Waihi.

Heritage Gold owns a prospect at Karangahake on Coromandel Peninsula.

The US dollar rally has yet to make much difference to local producers because, as exporters, they are also affected by the strong New Zealand dollar.

In New Zealand dollar terms the gold price has come off a $700 high ­ when the US dollar price was just above $US300 ­ to about $630.

Higher US dollar prices are partly behind GRD's plans to float off part of its New Zealand operation in a new vehicle, Oceania Gold.

"People are using this as an opportunity to be able to attract new investments to gold stocks, similar to what we are doing with Oceania early next year," Mr Jubber said.

GRD New Zealand is fully hedged against both the US currency and the US dollar gold price for the next five years.

Mr Jubber said GRD's returns had exceeded the average spot price in each of the past 13 years.

"We'd like the New Zealand currency to come down so we can get the higher hedge price."

Proceeds of the Oceania float will be used to finance long-planned development of the Macraes and Reefton fields.

The Globe Progress open cast project at Reefton now has full resource consent after years of delays.

The company is also looking to redevelop the nearby Blackwater mine.

Exploration drilling continues at the Macraes field in Otago and development is planned at Sams Creek near Nelson.

Oceania's current 170,000 ounces of annual production is expected to rise to 400,000 ounces by 2007 and it will have reserves of about 2.6 million ounces.



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