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MELBOURNE, Australia, Oct. 30 /CNW/ -
Date of lodgement: 30-Oct-2008
Record of interview:
OceanaGold Corporation (TSX, ASX and NZX codes: "OGC") group production
quarter on quarter increased by 8% to 63,270 ounces from 58,289 ounces and
cash costs decreased to US$640 per ounce from US$741 per ounce. Total cash
operating costs (US$ per tonne processed) fell to US$23.29 from US$26.21. What
were the main drivers of the production and operating cost performance? What
is the outlook?
CEO Steve Orr
The increased production this quarter was mostly due to improved
performance at our newly commissioned Frasers Underground mine, where we
achieved record mine production of over 14,000 ounces. The mine is operating
to plan with ore mined averaging a higher grade than predicted partially due
to a high grade quartz vein intersected by the decline development.
Higher production and lower electricity costs contributed to a 13%
decline in cash costs compared to the June quarter 2008. Given this
encouraging trend we're still maintaining our guidance for the full year of
265,000 to 275,000 ounces at a cash cost of between US$560 to US$595 an ounce.
For Australian based gold producers, I believe that places us in the top five
in terms of production for 2008.
In FY09, we are expecting combined production from our three New Zealand
mines to be in the range of 280,000 - 300,000 ounces at a cash cost of US$425
to US$475 per ounce. We are expecting cash costs to decline further due to
higher grades from the Macraes open pit and a weaker forecast for the New
Zealand dollar against the US dollar.
OGC announced in its September 2008 quarterly EBITDA of US$19 million, up
from US$1.1 million in the June quarter. What were the major components of
that increase? Can you reconcile EBITDA (excluding undesignated gain/(loss) on
hedges) with Reported earnings/(loss) after income tax (including undesignated
gain/(loss) on hedges) of minus US$10.9 million?
CEO Steve Orr
The weakening of the New Zealand dollar against the US dollar was the
main component of the quarter on quarter increase with stronger production and
lower operating costs, particularly electricity, contributing the remainder.
Regarding the reconciliation of EBITDA against the net earnings; about
two thirds of the difference is an accounting charge which recognises
unrealised losses on the value of the remaining hedge contracts. This was due
to an increase in the New Zealand dollar gold price as a result of the decline
of New Zealand dollar against the US dollar. The balance of the difference is
due to depreciation charges.
Can you reconcile the EBITDA of US$19 million with cash flow from
operating activities of minus US$2.7 million (down from US$10.8 million in the
June quarter)? What are your current cash and debt levels?
CEO Steve Orr
The reported negative US$2.7 million was mainly due to timing of creditor
payments that we made in the Philippines for the Didipio project. To really
understand the cash produced from operations, it's better to look at our New
Zealand operations, where US$5.4 million in cash flow was generated.
Our cash position was US$17.2 million at the end of the quarter. Total
debt is about US$135 million with an additional US$47 million for capital
leases for our New Zealand equipment. The large majority of our debt is
classified as non-current.
OGC settled 78,312 ounces of fixed-forward hedging in September
representing a 25% reduction in the total fixed-forward hedging position. What
hedging remains in place? Do you have plans to review your hedging facility?
CEO Steve Orr
We have 241,000 ounces remaining in our entire portfolio. The average
price of those flat forward hedges is NZ$773 per ounce and it's evenly split
across 2009 and 2010 after which we will have completely closed out the entire
Our objective is to extinguish the remaining hedging facility as quickly
as possible. We're quite bullish on the price of gold, particularly in New
Zealand dollar terms. Our outlook is based on expected weakness in the New
Zealand dollar at least over the next year. We would like to be selling as
much of our production at spot market prices and we continue to look for
opportunities to extinguish our existing hedge contracts.
Limited construction continues at the Didipio Gold-Copper project in the
Philippines with a temporary suspension of high expenditure activities. These
low cost capital projects will assist with facilitating rapid ramp up of full
construction activities in the future. How are you addressing the funding
requirement to complete the total project? Can you comment on the range of
options available and the process you will be undertaking to find a solution?
CEO Steve Orr
We are pursuing a range of options regarding Didipio including the
possibility of establishing a joint venture and/or finding a suitable partner
or investor for the project. We have made significant progress thus far.
Gold's traditional role as a store of value during times of economic
uncertainty has been challenged. Where do you see the gold price moving and
what is the impact of a low gold price on the viability of the gold mining
industry? Where do you see the opportunities for OGC in the medium term?
CEO Steve Orr
I remain bullish on the US dollar gold price and expect to see it
increasing from its current levels over the medium term. At the moment, it is
being influenced by the unusual set of circumstances associated with the
global liquidity crisis. There has been a high level of redemption demands on
investment institutions. As a result, they have been liquidating positions in
commodities such as gold, base metals and oil. We are seeing a significant
amount of pressure on commodity prices. This will take some time to work its
way through the system, but once it does, we expect to see an appreciation in
the US dollar gold price.
Currently, the average industry production cost is about US$600 an ounce
and that doesn't include the exploration costs to regenerate reserves. We
require a gold price in the US$750 per ounce to US$800 per ounce range to
ensure a healthy industry.
The weakness in the New Zealand dollar creates obvious opportunities for
OceanaGold in the near term. About 80% of our costs are denominated in New
Zealand dollars, so we monitor the New Zealand dollar gold price closely.
Every 1 cent decline in the NZ dollar compared to the US dollar generates
about NZ$2 million of additional cash flow per year. This is quite substantial
and foreign exchange is probably one of the most sensitive variables for us.
The New Zealand dollar gold price is now about NZ$1,350 an ounce and has been
as high as NZ$1,560 per ounce in recent weeks, which is a record gold price in
New Zealand dollar terms.
Our New Zealand operations are now performing consistently and we've seen
quarter on quarter improvement since the beginning of the year. Sustained
strength in gold prices is expected through the current quarter and we remain
focussed on identifying further cost reduction opportunities and driving
greater value for OGC shareholders.
Thank you Steve.
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