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Fletcher Energy strikes a gold share price ahead of dull sector

By Peter V O'Brien

Friday 4th August 2000

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FCL Energy provided most of the action in an otherwise dull mining sector over the past three months.

The stock closed at $4.75 on April 28, the cutoff point for The National Business Review's quarterly review of the sector in May.

It was $7.15 last Friday, having earlier reached a year's high of $7.75. High oil prices, excellent test results from the Pohokura-2 appraisal well offshore from Taranaki and the dismantling of Fletcher Challenge letter stocks contributed to the price rise, with results from Pohokura-2 probably the main factor.

Fletcher Energy's quarterly production and development report for the three months ended June said the field was estimated to contain mean reserves of 750 billion cubic feet (bcf) of gas and 40 million barrels (mmbl) of condensate, of which 393 bcf and 17 mmbl of condensate were considered to be proven. The company has a 33.3% interest in the field.

Fletcher Energy chief executive Greig Gailey described the test results as "fantastic news" for the company when they were reported in June and said a significant upgrade to the Pohokura reserve estimates would help underpin a sustainable gas supply for the country's future.

The other partners in the joint venture are Preussag Energie (33.3%), Shell Petroleum (18.3%) and Todd Petroleum Mining (15%).

Fletcher Energy's quarterly report said the company's full-year production of oil and gas was 48.9 million barrels of oil equivalent (mmboe), where a conversion factor of 6bcf:1mmboe was used in calculating the oil equivalence of gas.

Maui gas annual sales increased 15% over the previous year, driven by continued strong gas demand from the electricity and methanol sectors.

Gas production continued to grow in Canada, taking advantage of the strong North American gas-price environment.

The two producing goldminers with interests in New Zealand, Gold and Resource Developments and Otter Gold Mines, continued to increase production, but there was little effect on their share prices.

A survey of gold is contained in the discussion of precious metals in NBR Personal Investor (pages 56-59).

Gold and Resource Development (GRD) now has three business operations: gold (GRD Macraes, which operates the Macraes field in Central Otago), resource solutions (GRD Minproc) and construction (GRD Kirfield).

GRD Macraes produced 43,136 oz of gold in the quarter and 88,155 oz for the six months ended June. It "shipped" (sold) 42,802 oz in the quarter and 85,584 oz for the half-year.

Total cash operating costs for the quarter and half-year respectively were $A288 and $A283 per ounce, leaving gross cash operating margins of $A264 and $A268.

The half-year result was a record and the company said it remained on target to achieve its 2000 production and cash-costs forecasts.

GRD's Reefton gold project should provide sufficient information from an optimisation study to allow a conditional commitment by the end of the year to proceed.

Otter's net equity gold production was 32,180 oz in the quarter, which was higher than the previous quarter's 27,068 oz, but continuing wet conditions at the company's Tamani mine in Northern Australia still adversely affected production.

Average cash operating costs were $A346 an ounce, compared with $A391 in the previous quarter and came out as $A365 an oz for the full year ended June.

Equity gold production for the full year was 118,891 oz, comprising 33,611 oz from the company's 32.94% interest in the Martha Hill mine on the Coromandel, 74,250 oz from Tamani (a 60% equity interest) and 11,030 oz from the Beaconsfield mine in Australia, where the company has a 28.9% interest.

The total equity production of 118,891 oz was below the 150,000 oz forecast in the 1999 annual report and had put pressure on the group's finance facility which was almost fully drawn at the end of the year.

Otter said the "causal conditions" of delay in expanded production at Martha Hill and prolonged wet weather at Tamani were now past. Gradual improvement in production levels at Beaconsfield were also expected to occur.

Summit Resources' quarterly report said the company was discussing funding and joint-venture proposals with several interested major mining companies to start drill testing a series of base-metal targets on its Isa North ground in northwest Queensland.

The company had three primary targets at Isa North ready for drill testing which had the potential to host large, worldclass base and precious-metal deposits.

A sign of the wide-ranging work done on various schemes in the mining sector was seen in a comment that numerous projects and business proposals in the mining sector and technology and e-commerce sectors were assessed during the quarter but the company did not find any opportunities to add shareholder value.

Mining stocks share prices (c)
Company23.7.9929.10.994.2.0028.4.0028.7.00
Cue710.812.48.56.9
FCL Energy567455426475715
Heritage661888.1
Gold & Res57115929096
NZ Oil & Gas3642632528
Otter7095887067
Summit1110.913.3119.5
London gold
($US/oz)255.30299.10293.65275.05
2000 high:$US313.00low: $US272.65
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