OceanaGold Corporation

Temporary suspension of production at Didipio Mine:OceanaGold Corporation (ASX: OGC) is a gold producer with various assets spread across multiple locations, including the Philippines, New Zealand & South Carolina.
 
Unaudited Results for Third Quarter:During the nine-months ended 30 September 2019, consolidated production of gold was reported at 362,450 ounces. The company also produced 10,187 tonnes of copper. Cash cost and All-in Sustaining Cost for the period amounted to $725 per ounce and $1,087 per ounce, respectively. During the period, the company sold 341,000 ounces of gold.

Gold and copper production for the September quarter stood at 107,478 ounces and 2,316 tonnes, respectively. Out of the consolidated production in the third quarter, production of gold and copper at Didipio was reported at 16,727 ounces and 2,316 tonnes, respectively, which remained unsold due to the cessation of transport activities early in the quarter. Sales during the quarter stood at 94,347 ounces of gold at an AISC of $1,122 per ounce and cash costs at $828 per ounce sold.

Operational Highlights:Gold production at the Haile operations, situated in North Carolina, was reported at 36,812 ounces at an AISC of $1,106 per ounce. Sales were reported at 42,085 ounces. There was a q-o-q decrease in AISC reflecting continued increase on process plant throughput and an improvement in mine productivity across the quarter. In addition, mining, processing, and site general & administrative unit costs were significantly lower in comparison to the previous quarter. Due to the continued fine tuning of the new regrinding circuit and processing of low-grade stockpiles, the company witnessed a slight decrease in recovery during the quarter. In the second half of 2019, the company expects productions to be higher than the first half.

Gold production and sales for Macraes stood at 37,918 ounces and 37,595 ounces, respectively. AISC was reported at $1,262 per ounce. Production remained flat in comparison to the previous quarter due to the similar grades and recoveries. Gold production for Waihi was reported at 16,021 ounces with an all-in sustaining cost of $778 per ounce.


Production & Cost Details (Source: Company Reports)

Full Year Guidance: As per the revised guidance, the company expects production to be in the range of 460,000 – 480,000 ounces of gold. Copper production is expected to be in the range of 10,000 – 11,000 tonnes. Consolidated AISC is expected to be in the range of US$1,040 – US$1,090 per ounce. Cash cost is expected to be in the range of US$710 – US$760 per ounce. The revised guidance came in as a result of temporary suspension of production at Didipio due to the local government unit blockade impacting operations in the Philippines. The blockade caused the continued restraint of supplies to the mine that led to a depletion of consumables necessary for sustained operations. The guidance assumes no further production or sales from the Didipio operation for the remainder of the year.

Stock Recommendation: The stock of the company generated negative returns of 14.63% and 11.84% over 1 month and 3 months, respectively. During the June quarter, the company had a gross margin of 46.4%, which is higher than the industry median of 10.2%. EBITDA margin for the quarter was reported at 37.6% as compared to the industry median of 6.5%. As per the report released for the September quarter, the company expects to report a higher production from the Haile operations in the second half as compared to the first half. In addition, production from Macraes is also expected to increase in the fourth quarter due to higher grades. However, the business has come under the risk radar due to the suspension of operations at the Didipio Mine that has contributed significant socio-economic benefits in the Philippines. Considering the backdrop of the above factors and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $3.500 on 30 October 2019.

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