Highlights:
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Discusses recent solid EBITDA & Didipio operational performance.
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Strong finish to year expected with production up.
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Further efficiency gains to be secured at Didipio.
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Discusses opportunities in the Philippines.
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No direct impact on Didipio of recent typhoons - OGC helping community
in Haiyan disaster relief & ongoing significant contribution to world's
waterways management.
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Over 20 years of a high standard in environmental management and
community engagement.
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Outlines plans to improve longer term investment quality of OGC.
MELBOURNE, Nov. 13, 2013 /CNW/ - Record of interview:
Note: All references are in USD unless stated otherwise.
Company Interview question:
OceanaGold Corporation (ASX/TSX/NZX code: OGC; market cap of ~$550m)
reported EBITDA of $76.3 million for the September quarter 2013 after
reporting $42.5 million for the June quarter and $47.1 million for the
March quarter. Given the prevailing gold and copper prices over the
September quarter, was this in line with your expectations? What about
operational performance, particularly Didipio?
Managing Director & CEO, Mick Wilkes
Yes, the EBITDA met with our expectations and it was a strong result.
We were very happy with the production and operating costs at Didipio
where there was strong copper production growth. That allowed us to
increase our guidance for 2013.
The gold price in particular has been under pressure and we were very
pleased to achieve significant reductions in costs at our New Zealand
operations despite the higher New Zealand dollar exchange rate. That
showed that the cost measures we started implementing earlier in the
year are certainly taking hold.
The production at Didipio has gone particularly well. Throughput is
going to plan, recoveries are now at around 95% and that is better than
expected, however we are currently benefiting from some higher copper
grades through the mill. That is simply a function of having a
positive reconciliation of ore tonnes and we've therefore been able to
put some higher grade feed through the mill. Unit costs per tonne are
lower than expected and, with the higher copper production, we've been
able to report a lower operating cash cost after by-product credits.
That has resulted in us increasing our copper production guidance for
2013.
Company Interview question:
For the September quarter 2013, total Company production was 74,697
ounces of gold and 6,150 tonnes of copper. You recently revised
guidance for OceanaGold for 2013 with gold stable at 285,000 to 325,000
ounces but copper increased to 18,000 to 20,000 tonnes (all from
Didipio of course) and cash costs lowered to $550 to $650 per ounce.
With production up and cash costs down, a strong finish to the year
looks to be expected. Can you give a broad commentary on the outlook
for operations as well as on the Company's strategy to strengthen the
balance sheet?
Managing Director & CEO, Mick Wilkes
Well, we are expecting a strong December quarter as a result of higher
grades across all operations and are going well so far this quarter.
That will translate to strong cash flow for the quarter and, as we've
always said, we intend to use that cash to pay down debt. An objective
is to reduce debt by approximately $40 million, from the level it was
at 30 September, by 31 December. That will reduce our gearing and
improve our balance sheet.
Company Interview question:
How might you achieve efficiency gains at Didipio in areas such as
moving to owner trucking of the concentrate and power supply study?
Managing Director & CEO, Mick Wilkes
The decision to buy the trucks which transport the copper-gold
concentrate was made after commissioning was completed and we've
achieved a very significant cost saving - the trucking costs have
halved from around $100/t to around $50/t of concentrate. Also, the
efficiency and reliability of the trucking fleet has improved
immensely.
We've always recognised the potential to reduce power costs by supplying
grid power to the mine site, but we only ever intended to do it after
the project had commissioned. We didn't want to expose the
construction and commissioning schedule to a risk in delay from
building a power line. We believe that connecting to the grid could
save around $10-15 million per annum in operating cost and would have a
fairly quick capital cost payback. We've selected the route and it has
been confirmed that we will have 'right of way' during construction. We
are currently seeking definitive costs on construction.
There are several other cost initiatives we're looking at now that
Didipio is bedding down. These include in areas where we can increase
productivity and also in reducing waste.
Company Interview question:
You recently announced $100m of cost savings in New Zealand. Can you
elaborate on the major areas of cost savings and when these are
expected to be achieved? Are there any other actions taken to maximise
operating margins?
Managing Director & CEO, Mick Wilkes
We announced several areas of cost savings in New Zealand as a result of
the falling gold price including remodelling mine plans, to put Reefton
on care and maintenance in two years and deferring a cutback at
Macraes. We will save a large amount of capital through not having to
do a lot of the pre-strip. Then there are savings in power through a
renegotiated contract, reduced contractor rates and we have agreements
for wage freezes with our employees.
All up, it's been an excellent performance by the teams in New Zealand
to achieve these cost savings, which will continue over the next year
and beyond as we implement plans and formulate new ones.
Company Interview question:
Didipio remains in ramp-up mode with 18,011 ounces of gold and 6,150
tonnes of copper produced in the September quarter. When will the
operation be optimised in terms of production levels and cost
structure? How might you achieve the next step change in value from
your tenements in the Philippines, including Didipio, through either
expansion or exploration? What's your current approach?
Managing Director & CEO, Mick Wilkes
We're in the process of maximising recoveries for the plant and it's
pretty much where we think it should be. The next step is to really
push the throughput to maximise that. We've commenced a debottleneck
program to take the mill up to 3.5 million tonnes of ore per annum in
2015 from the 3 million tonnes we expect to process in 2014. The
ramp-up is underway and the debottlenecking program will cost around $7
million in modifications to the plant.
The obvious output from these optimisation programs is that we will be
increasing production and decreasing the operating cost per tonne of
ore and ounce of gold.
Additionally, we're continuing with the study on the timing on the
underground and in particular the design of the underground and the
schedule for capital costs and production which will maximise the value
of this investment.
We're looking forward to securing our exploration permits to drill
around Didipio although we can't give the timing for that. We are also
trying to secure permits to drill on tenements in other parts of the
Philippines apart from Didipio. There's plenty of potential for new
ore resources on our ground in the Philippines and particularly around
Didipio. If we're successful with exploration in the vicinity of the
mine site, we will almost certainly look at an expansion for Didipio to
around 5 million tonnes of ore per annum.
Company Interview question:
The Philippines has suffered some recent terrible natural disasters
including Super Typhoon Haiyan. Has there been any major impact on
Didipio or its surrounding communities? What measures has OceanaGold
taken to address these natural disasters?
Managing Director & CEO, Mick Wilkes
The latest typhoon is certainly a very sad event and we are concerned
for the people in the Philippines and sympathise with their loss. We
are doing everything we can on the ground to assist with the recovery
effort, including sending our Didipio Emergency Response Team, along
with other mining companies, and by contributing to aid in particular
to the UNICEF Childrens' Emergency Appeal.
The typhoon was well south of Manila whereas Didipio is located in
northern Luzon, about 250 kilometres north of Manila. Thankfully,
there was no threat to the safety of our staff in Manila or at the
operation or to production.
The Philippines is prone to typhoons and on occasion Didipio experiences
typhoons but we are well prepared for such events. A large typhoon
came through the operation in August and we came through pretty much
unscathed. We provided relief assistance to some 1,200 families in the
region following the storm.
Company Interview question:
Many of these natural disasters include major flooding and environmental
degradation of existing waterways. Is OceanaGold looking to use its
experience to carry out programs to address these issues?
Managing Director & CEO, Mick Wilkes
We do a lot of work with local communities to minimise the impact of
these natural disasters on local waterways. On a corporate level, we
have a partnership with the International RiverFoundation (riverfoundation.org.au) ("IRF"). The IRF works in partnerships around the world to promote
the sustainable restoration and management of river basins and
waterways. Through encouraging local community participation with
waterway restoration and management, the IRF is taking a leading role
in the Philippines to help combat and reduce the negative effects of
small-scale mining on river systems. OceanaGold is supporting this
initiative and is uniquely situated to have a positive influence on
these objectives.
We are excited about the potential for our partnership with the IRF and
have started work with them and we're looking forward to some positive
results over the next couple of years. We recently received a
commendation from the IRF and we have also agreed on a program where we
will plant trees in areas devoid of trees and where it is prone to
flooding.
In addition to the Philippines, we've operated for 23 years in New
Zealand which is one of the greenest countries in the world with
stringent environmental standards. In fact, at our Macraes mine we've
been working in partnership for a number of years with the local
fisheries department to raise rainbow trout every year on our mine site
which are released into local lakes and ponds in the South Island of
New Zealand.
Company Interview question:
On 8 October 2013, OceanaGold agreed to acquire all the outstanding
shares it did not previously own in Pacific Rim Mining Corp. Although
this is a reasonably small proposed transaction, with a value of C$10.2
million (as at close October 7, 2013), it is an important test case for
OceanaGold as you have previously expressed a willingness to look
externally to help fulfill your growth objectives. What has the market
reaction been so far to OceanaGold expanding to the Americas providing
the transaction is approved by Pacific Rim shareholders later this
month? Do you think that the Company's successful history of operating
in Australasia for the past two decades will be transferable to the
Americas?
Managing Director & CEO, Mick Wilkes
El Salvador has not had modern operating mines over the past twenty
years though a number of companies were actively exploring there up
until about five years ago. Our shareholders are pretty comfortable
with this move into Central America for this opportunity which is still
subject to Pacific Rim shareholder approval later this month.
We have obviously demonstrated our ability to operate successfully with
significant positive benefits for local stakeholders in developing
countries where modern mining currently is making a big impact on
improving the quality of life. We successfully commissioned our
Didipio Mine in the Philippines earlier this year. This would not have
been possible had the project not received the strong endorsement from
the local and surrounding communities. We've demonstrated our
environmental and community credentials for more than twenty years,
such that we believe that we can operate to similar high standards in
El Salvador where there is a high quality gold resource with an
expected low environmental impact utilising modern underground mining
methods.
We believe an opportunity like that would deliver significant benefits
to the local community and El Salvador in general - just in the way we
have managed to deliver such benefits in the Philippines and New
Zealand. It's a fantastic opportunity for our Company, the local
communities and the Government of El Salvador to unlock an economic
engine but do so in a sustainable and responsible manner that
OceanaGold is known for.
Company Interview question:
OceanaGold is seemingly in a strong financial and operational position -
and with further solid growth options. How might you improve the
longer term investment quality of OceanaGold stock even more?
Managing Director & CEO, Mick Wilkes
Our strategy is to continue to invest in high quality and low cost gold
production and in doing so should underpin an already robust company.
We will continue to build our inventory of low cost reserves and
resources to deliver long term value for our shareholders - similar to
what we have done at Didipio.
We are transforming the Company into a low cost business and we will
continue to build on that to achieve our longer term target of being a
mid tier, low cost and multi-national gold producer.
Company Interview:
Thank you Mick.
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SOURCE OceanaGold Corporation
