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MELBOURNE, Australia, Jan. 31 /CNW/ -
Date of lodgement: 31-Jan-2008
Record of interview:
OceanaGold Corporation ("OceanaGold" - TSX, ASX and NZX codes "OGC")
produced 63,505 ounces of gold in the December quarter 2007 which was a
significant increase over the September quarter of 43,194 ounces. Can you
comment on these increased production rates and the fact that cash costs
for the year while high at US$556/oz, came in under guidance of US$570-
$580 per ounce?
CEO Steve Orr
We had anticipated and planned for a particularly strong December
quarter. We had also expected the first three quarters to be challenging
due to our significant waste removal program at the Macraes open pit,
however this was completed on time as forecast by the end of the
September quarter when we resumed mining ore-grade material in the pit.
In addition, we significantly improved our performance at our new Reefton
As a result, concentrate production increased at Reefton and much higher
grades went through the plant at Macraes resulting in higher production
and dramatically reduced cash costs per ounce for the quarter.
Planned production rates were recently met at your Reefton operation and
the Frasers Underground mine was successfully commissioned this month.
Can you outline your Company-wide production and cash cost expectations
for 2008 in light of the initial operating performance of these new
mines? How does the NZ$ exchange rate influence these costs?
CEO Steve Orr
OceanaGold's production for 2008 will, for the first time in the
Company's history, come from multiple mines. We now have three operating
mines in New Zealand. In 2008, we expect to produce between 280,000 to
300,000 ounces of gold at a cash cost of US$440 to US$460 an ounce.
This cash cost guidance is higher than our guidance provided mid-year in
the prospectus with our TSX listing despite our cash costs in NZ$ terms
remaining virtually unchanged over that time. Our US$ cash cost forecasts
have increased because the NZ$ has appreciated from US$0.68 in early 2007
to approximately US$0.78 now.
Offsetting this is the gold price which is up by about US$300/oz from
January 2007. That has resulted in much higher margins and significantly
higher cash flow. To take advantage of the strong gold price, we've
recently announced that we've rolled our hedge position in 2008 into
2011, which leaves us entirely unhedged this year. That will
significantly improve our cash flow in 2008.
You have previously described 2007 as a transition year for your major
New Zealand operation, Macraes Gold Mine, with the processing of low-
grade stockpile resulting in exceptionally high cash costs. Are you
through that transition period? How do you expect Macraes to improve in
terms of production and cash costs? The average grade through the mill at
Macraes for the December quarter was 1.43 g/t, substantially higher than
the earlier quarters of 2007. What grades do you expect in 2008 and what
are the key drivers to attaining this?
CEO Steve Orr
Yes, we are through the transition period. The performance in the
December 2007 quarter demonstrated what we expect to see from our
operations in 2008. For instance, the mill grade at Macraes in the
December quarter increased 56% over the September quarter because we're
now processing mine grade ore versus low grade stockpiles.
We expect similar mill grades in 2008 - in the range of 1.3 to 1.4g/t.
The December quarter was a great example of the leverage that we can get
in New Zealand from improved ore grades. We produced 19,305 ounces in
December alone, which is the highest on record and our cash costs were a
very competitive US$372/oz.
The key drivers for a stronger operating performance in 2008 are: mining
the recently accessed ore blocks at Macraes; having the Frasers
Underground fully commissioned; and having the Reefton mine performing to
expectations. The Frasers Underground and Reefton are particularly
important as their ore grade is about twice the grade of Macraes open
Do your longer term production and cash cost targets remain on track once
your Didipio gold-copper project in the Philippines commissions in 2009?
CEO Steve Orr
Yes they do. As a matter of fact, at these buoyant metal prices, our cash
costs at Didipio could be lower than we had been projecting to the market
because we have done all our financial forecasting based on a copper
price of US$1.90/lb. The copper price is currently over US$3/lb. So, with
a significantly higher copper price, our forecast cash costs after by-
product credits actually declines. We also based our financial forecasts
on a gold price of US$500/oz, and the gold price is now well over
We certainly expect to achieve our cost guidance because it was quite
conservative relative to metals pricing today.
OceanaGold's market capitalization is around A$400 million. In a recent
Open Briefing you stated that by 2011, you expected to generate between
US$90 million and $100 million in free cash flow based on a gold price of
US$500/oz and a copper price of US$1.90/lb. What is the sensitivity to
higher commodity prices given that spot gold is now well over US$900/oz?
CEO Steve Orr
In 2010, Didipio's first full year of production, a US$100/oz increase in
the gold price would generate another US$28 million to the bottom line of
the Company and a US$1/lb increase in the copper price would generate
about another US$43 million.
What challenges or out-performance have you achieved at Reefton so far?
What are the main challenges in ramping-up Frasers Underground?
CEO Steve Orr
The biggest challenge in achieving targeted production rates from Reefton
are associated with the concentrate filter press. The ore contains fine
clay and we had initial bottlenecking problems with the filters. We've
partly addressed this by delivering higher density to the concentrate
filters so it doesn't have to remove as much water. We are also adding a
supplementary filter as a backup and we've added additional chemicals to
the process. Reefton is now achieving projected production rates.
We've been very happy with the commissioning of Frasers Underground.
While we announced its full commissioning in early January 2008, Frasers
has been producing gold intermittently throughout 2007. It produced over
10,000 ounces in the December quarter.
OceanaGold has contracted Ausenco Limited for the engineering,
procurement, construction and management (EPCM) at Didipio. Can you
update progress? When do you expect to complete the camp construction?
When do you expect to begin pre-strip and the construction of the process
CEO Steve Orr
We're currently doing civil work around the process plant site. We've
completed the tender analysis for our largest contract which is the pre-
strip for the open cut and also for the construction of the tailings dam.
We've notified our preferred contractor and are working through the final
contract details and will announce the successful bidder in the next few
weeks. Following this, the contractor should mobilise to site by the
beginning of the June quarter 2008. Pre-stripping will be completed at
the beginning of 2009 and will be followed immediately by first ore
mining. We'll mine the open pit for around 3.5 years and follow that with
underground mining below the bottom of the pit.
By mid 2008 we'll start construction on the 2.5 million tonne per annum
plant which will include crushing, grinding and flotation. We've also
started early stage negotiations for concentrate off take agreements with
There has been considerable speculation regarding community support, or
lack of, for the Didipio project. Can you comment on these reports?
CEO Steve Orr
It has been disappointing that our position in the Philippines has been
misrepresented in some factually incorrect reports. We have extensive
local community support for the project and we also have both federal and
regional government support. We've made it a key focus to ensure the
majority of the community supports the project since acquiring it just
over a year ago. We've put a great deal of effort into community
development initiatives such as training and hiring of the local
community so that we can give them employment preference. Additionally,
we have started working with local universities and a Philippines based
NGO to identify sustainable initiatives in a variety of areas that can be
implemented today that will provide positive impacts in the near and long
term. These efforts have been an important factor in progressing the
OceanaGold's share price has fallen from a high of $4.15 mid last year to
the current approximately $2.60 and a little above its all-time low of
$2.18. What is your view on the weak share price considering the rapid
increase in gold price and strong production growth profile out to 2011?
CEO Steve Orr
There are a lot of issues that we need to deliver on this year along with
commissioning of Didipio in 2009. I think the market certainly expressed
its disappointment with the performance of the New Zealand operations in
2007 and this was directly reflected in the share price. So there's a bit
of a "watch and wait" in the share price, but we're confident we can
deliver and the strong December quarter demonstrates we are well on our
way to doing that.
Our share price has certainly been impacted by the misrepresentation and
inaccuracies regarding support in the Philippines. However, we believe
the market does realise the very significant value that exists within the
Didipio deposit and how beneficial its strong cash flow and low cash cost
will be for OceanaGold's overall profile. We are a bit of an early mover
there and while that presents challenges it also conveys enormous
opportunities. The Philippines will be an important part of our business
for years to come.
Obviously, 2008 is a crucial year for us. For the first time in the
Company's history, we will have three operating mines and the market is
watching to see if we can effectively deliver on our target of 280,000 to
300,000 ounces in 2008. The market is also watching to see if we can
effectively deliver on the construction and the commissioning of Didipio
by 2009. We are certainly on track with both and are happy with our
Can you outline the current exploration programs - at depth at Macraes,
in the Reefton Goldfield and in Philippines? Where do initial results
indicate you might have success?
CEO Steve Orr
In the Macraes gold field, we are focusing on generating more underground
reserves. After we discovered the two underground panels under the
Macraes open pit, we started drilling under some of the open pits that
were mined when Macraes was commissioned at the beginning of the 1990s
and it looks like we have another underground panel emerging under the
very first pit drilled. So, we're quite optimistic about our ability to
generate multiple underground panels from the 7 legacy pits that have
been mined in the Macraes gold field over the last 17 years.
At Reefton we've actually been very successful in converting resource to
reserve, both through infill drilling - which demonstrates continuity in
the mineralisation between the four, currently distinct pits - and
secondly through an increase in the gold price.
Beyond that, we're conducting broader regional exploration drilling
throughout the Reefton goldfield. Right now we're drilling just to the
north at Crushington where it appears another surface resource is
In the Philippines, our focus for 2008 will be on a greenfields project
called Manhulayan, quite a way south of Didipio, on the Northern Surigao
Peninsula. It has a very strong surface expression of a copper/gold
porphyry. We're currently mapping it and doing some surface sampling and
we expect to begin drilling around April 2008. Also, a number of the
near-mine targets at Didipio will be drilled this year as we look to
expand the reserve near Didipio ultimately working some of these into the
mine plan. Outside of that, our team in the Philippines is working with
local communities on a number of our exploration tenements to re-
establish relationships and update permits.
What other avenues does OceanaGold have to pursue a growth strategy?
CEO Steve Orr
The production rate of 280,000 to 300,000 ounces per annum from
New Zealand will be fixed unless we find a large enough discovery to
justify expanding the autoclave facility at Macraes. However, we're
optimistic in our ability to generate additional reserves both in the
Macraes and Reefton goldfields.
Upside from new projects exists in the Philippines where we have six
highly prospective copper/gold porphyry projects all of which have the
potential to generate ore bodies of the scale of Didipio.
In addition, we're looking at other opportunities throughout Australasia
to acquire assets or companies and continue to expand our production and
our exploration projects.
Thank you Steve.
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For further information: about OceanaGold, please visit
www.oceanagold.com or contact Darren Klinck, Vice President, Corporate and
Investor Relations, OceanaGold Corporation, telephone + 61 3 9656 5300