U.S. Markets open in 2 hrs 45 mins

Edited Transcript of OGC.AX earnings conference call or presentation 26-Jul-18 9:30pm GMT

Q2 2018 OceanaGold Corp Earnings Call

Melbourne Jul 31, 2018 (Thomson StreetEvents) -- Edited Transcript of OceanaGold Corp earnings conference call or presentation Thursday, July 26, 2018 at 9:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Craig A. Feebrey

OceanaGold Corporation - Head of Exploration and EVP

* Michael Francis Wilkes

OceanaGold Corporation - President, CEO, MD & Director

* Michael Harvy Lou Holmes

OceanaGold Corporation - Executive VP & COO

* Scott A. McQueen

OceanaGold Corporation - Executive VP & CFO

================================================================================

Conference Call Participants

================================================================================

* Chris Thompson

PI Financial Corp., Research Division - Head of Mining Research & Precious Metals Analyst

* Michael Sroba

Macquarie Research - Research Analyst

* Michael Slifirski

Crédit Suisse AG, Research Division - MD

* Raj Udayan Ray

Desjardins Securities Inc., Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, and good afternoon, ladies and gentlemen, and welcome to OceanaGold 2018 second quarter results webcast and conference call. (Operator Instructions) This call is being recorded on July 26 at 5:30 p.m. Eastern standard time. I would now like to turn the conference over to Mick Wilkes. Please go ahead.

--------------------------------------------------------------------------------

Michael Francis Wilkes, OceanaGold Corporation - President, CEO, MD & Director [2]

--------------------------------------------------------------------------------

Thank you, and good morning and good evening to everybody. Welcome to the OceanaGold's second quarter 2018 results webcast and conference call. It's a pleasure to be here with you today to discuss another very strong quarter of our operational and financial performance. Others here with me today from the OceanaGold executive team. They'll provide specific details on our results. With me is: Michael Holmes, Chief Operating Officer, who will walk you through our operational results, and we're expecting from each of our assets for the remainder of the year; Scott McQueen, our Chief Financial Officer, who will discuss our strong financial results we achieved for the quarter and the half year; and Craig Feebrey, our Executive Vice President for Exploration, will take you through some of the significant field results we've seen at the Martha Project and our exciting new prospect, WKP in New Zealand.

Moving on to Slide 2, the usual cautionary statement before we proceed, and that all references in this presentation adhere to International Financial Reporting Standards and all financial figures are denominated in U.S. dollars, unless otherwise stated. Also note the presentation contains forward-looking statements, which, by their very nature, are subject to some degree of uncertainty. There can be no assurances that our forward-looking statements will provide -- will prove to be accurate as future results and events could differ materially. Please refer to the disclaimer.

Right. Slide #3. I'm more than pleased with our performance in the first half of this year. All of our operations are performing well, delivering on production targets and generating strong cash flows. Although we still have room for improvement, our business is in a very good place right now.

Revenue and profits in the first half of the year are up year-on-year. We continue to generate strong profits, and frankly, have consistently generated strong profits for quite some time. We remain one of the most profitable gold companies in the sector.

The profitability of our business has contributed to the continued strengthening of our balance sheet with net debt cut in half from where we were a year ago. Our cash balance continues to increase, up 58% from a year ago and 45% from the first quarter this year.

With that continued strength of our business, the Board is pleased to announce our second semiannual dividend for this year, which includes the payment of the $0.01 per share, plus an additional $0.01 per share, reflecting our strong outlook.

Our organic growth opportunities continued to be significant drivers for our business, with the advancement of the permitting of the 10-year mine life extension at Waihi, expansion of the Haile process plant where the pebble crusher is nearly fully commissioned, and the permitting for the Horseshoe underground and larger open pit at Haile about to commence. We've mentioned that the Didipio underground is advancing quite well.

Exploration is another major driver for our business. And as our last 2 exploration press releases have indicated, we have great potential through the drill bits to create additional organic value for shareholders.

Moving on to Slide #4. On the back of the strong start to the year, we now expect higher gold production from our business, with Didipio being the main contributor for the increased guidance as well as Haile, and its strong performance at Macraes. Strong performance at Macraes, which is off to a great start.

On a consolidated basis, we now expect to produce between 500,000 and 540,000 ounces of gold, which is up from our original guidance range of 480,000 to 530,000.

We've increased the lower range of the Haile Goldmine guidance from 135,000 to 140,000 ounces, while Didipio gold guidance has increased about 20% and now expected to produce 95,000 to 105,000 ounces this year.

In Slide 5, as I mentioned a few minutes ago, the Board is very pleased to declare our second semiannual dividend for the year, which includes the $0.01 per share and an additional $0.01 per share, reflecting a very strong operational and financial performance, cash flow generation and balance sheet, as well as our positive outlook for the business.

The payment of the dividend further reflects our desire to return a portion of the cash flows generated by the business back to shareholders while maintaining our intention to continue investing in our business and further strengthening our balance sheet. This is what I have often referred to as running a balanced business. When looking back over the past few years, on average, we have had a dividend yield of about 1.2%, which compares to our dividend-paying peers, who on average have had a dividend yield of about 0.8% over the same period. Although our dividend is modest, we are pleased to have included this discretionary amount.

On Slide 6. On a consolidated basis, our operations produced 268,000 ounces of gold and 7,800 tonnes of copper in the first half of the year, which aligns well with the increased guidance range. We delivered another strong quarter of production with each operation up from the previous quarter with costs lower. Production was up 14% quarter-on-quarter. Didipio led the way for the increased production while Haile processing rebounded from the previous quarter. Macraes had a strong quarter and getting stronger, and we saw noticeable improvements at Waihi. The operational performance culminated in the strong financial performance with revenue in the first half of the year up 21%, and profits up 45% over the same period.

Our adjusted earnings per share on a fully diluted basis was $0.07, which was better than consensus of $0.06 per share while our adjusted cash flow per share was a compelling $0.17 per share and a solid beat of consensus, which stood at $0.15 per share. I would like to point out that after we pre-released our production figures for the quarter, some analysts upped their financial estimates. Before these adjustments, consensus was $0.05 earnings per share and $0.13 cash flow per share. So it was a strong beat.

On Slide 7, I'd just like to emphasize that this is the 33rd consecutive quarter where we've delivered a positive return on invested capital. And this is no accident. We set out to build a business that was highly profitable, and profitable at almost any commodity price. Our consistent return on invested capital results clearly demonstrate that the investments make our -- we make are prudent and designed to generate strong returns over the long term.

Meanwhile, our EBITDA margin for the first half of the year was a solid 52%, which maintains our standing as having one of the highest EBITDA margins in the gold sector. I'm very pleased with our results. We're only starting to see the share price react to this performance. It's only a start, and we have some more ground to make up after a relatively soft year in 2017.

I'll now turn over the presentation to Michael to discuss our operating performance.

--------------------------------------------------------------------------------

Michael Harvy Lou Holmes, OceanaGold Corporation - Executive VP & COO [3]

--------------------------------------------------------------------------------

Thank you, Mick, and good morning, good afternoon, everybody. I'll spend the next few minutes going through our operational performance which saw each of our operations up on production.

If we turn to Slide 9, our safety performance remains an important focus for our business. We still have a bit of work to do to further drive the type of safety culture we aspire to from our operations.

At the end of the first half of 2018, our rolling 12-month total recordable injury frequency rate, slightly higher at 4.6 with Didipio performing well and better safety performance at Macraes. The safety culture and behavior of our work is critical, and continues to be our emphasis for delivering a work environment that is free of injury. Focus continues in the area of effective visible leadership in the field with safety supportive interactions with our employees during workplace inspections and task observations. We continue to be focused on managing the principal hazards and ensuring we have effective controls in place through our structured auditing programs. The majority of incidents that have occurred in the quarter are of lowest severity, immediately treated and restricted work injuries related to sprains, strains and finger lacerations. These injuries are all easily preventable and are unacceptable as we strive for an injury-free workplace. Over the next quarter, our workplace -- workforce safety behavioral program will be implemented at Haile.

Moving on to Slide 10 in the operational performance at Haile. Production was slightly better in the second quarter than in the first quarter with a significant improvement in the plant utilization being the major difference. This led to an increased quarter-on-quarter mill feed which was partly offset by slightly lower head grade. The head grade will continue to drift lower in the third quarter before returning to the swift second quarter levels in the fourth quarter. We are also expecting to continue increasing throughput in the plant while maintaining current recoveries.

Recovery was similar to the previous quarter despite the lower head grade and only achieving grind sizes in the lower 20 microns. This is a positive from our perspective as recoveries in the second quarter were similar to the first quarter while our head grade was lower quarter-on-quarter. We are continuing to learn more about the plant and making adjustments necessary to deliver good recoveries.

As the workforce continues to be trained and gain experience, our operational performance should also improve. Mining activity's a key focus for us. We continue to drive productivity improvements and this takes time. We're not where we want to be. However, we expect to get there through further training of the workforce, more effective maintenance programs and a focused leadership.

As we mentioned last quarter, we are implementing Minestar, a GPS and data collection technology designed to monitor and optimize equipment productivity. The planned expansion continues to progress well with the pebble crusher fully constructed and commissioning is nearly complete. And we've also upgraded our (inaudible) and look to -- and continue to look for all other bottlenecks as we seek to increase throughput rates up to the 3.5 million to 4 million tonnes per annum.

The Tower Mill and IsaMill equipment has been ordered and we expect to have both in operation in the first quarter of 2019. The outlook for the first -- for the rest of the year for us producing about the similar amount of gold in the second half of the year while continuing to drive further improvements to productivity through the strong leadership, continuous training and improved operating practices.

We're also working with the regulators to submit our permit application for the Horseshoe underground and the larger open pit designs. This is an exciting milestone as along with the planned expansion, will make Haile a 200,000-ounce a year producer.

And finally, exploration is a key driver, not only in the day-to-day operations, but also for the future reserves resource growth. We have learned a lot about the geology and the structures at Haile over the past 2 years, and we're all excited about the future potential at Haile.

Moving on to Slide 11, and the Didipio in the Philippines. We've had another strong quarter of health and safety performance and production from this operation. It continues to be a leader in the ESG and continues to win awards for environmental excellence. Production at Didipio increased quarter-on-quarter on the back of an increased head grade and better recoveries. The increase in head grade is related to a change in mine sequencing, where we've mined a portion of the Crown pillar in the high-grade Breccia zone in from the surface. The area of the mine will be backfilled with cement and rock to stabilize the pillar, and this will allow us to more effectively mine the Breccia zone in the underground. The sole purpose for this change is for geotechnical reasons as we continue to learn more about the rock competency as we continue to mine.

There is the added economic benefit from mining and processing high-grade material now compared to this material being mined and processed at the end of the mine life. The high-grade material continues this month before dropping off for the remainder of the year. The underground operations continue to ramp up the plan with 2 more stopes mined in the quarter and a third underway.

We've also increased the size of one of the stopes in the monzonite zones, and this potential shows us there's further potential to look at increased sizes of the stopes in the monzonite area in the future.

Meanwhile, a water storage stope is nearing completion. And by having this work completed, which assists with the water management, it also then facilitates the opening of more stopes and mining fronts.

Costs are generally in line with expectations thus far, and as underground operations ramp up, we see the unit cost move towards the $36 per tonne as we expected. For further efficiency such as optimizing mine plans and stope sizes, like what we've already done, we will achieve these lower costs.

For the rest of the year, Didipio production will be slightly lower in the second half due to the lower grade. However, it will continue to generate good cash flows.

Moving on to Slide 12 in Waihi in New Zealand. Waihi saw increased production from their operating performance and equipment availability. Increase to material mined and processed drove the lower unit costs. Development of the exploration drive -- drill drives continues in the quarter. And as Craig will discuss shortly, drilling from the multiple platforms, along these 2 drill drives has yielded some exciting results. We continue to remain focused on our health and safety at Waihi and a consistent performance from the operations. Our communities team continues its positive engagement with the town of Waihi and the regulator as we advance the permitting process for the 10-year mine life extension at Waihi.

Turning over to Slide 13 in Macraes in New Zealand. Macraes had a strong quarter of operational performance. Health and safety performance improved and production increased. Macraes is generating some very good cash flows, and we expect this to increase in the second half of the year.

Mining operations focused on the higher grades from Coronation North and continues the operations in places underground. The ore tonnes mined increase quarter-on-quarter, and we mine less waste. For the second half of the year, we expect the mine -- to mine a lot more ore, with slightly lowering the overall strip. Mining grades expected to be like the second quarter. However, our head grade, particularly in the fourth quarter is expected to increase as we process a high proportion of the higher-grade material from Coronation North. Costs were in line with expectations, and we expect them to be slightly lower in the second half of the year on high production and sales.

Looking ahead to the rest of the year, we expect production at Macraes to be slightly stronger in the second half, with the fourth quarter being the strongest on the back of a higher head grade. We currently have a few initiatives underway to further increase the mine life at Macraes, which is currently at 2021. Exploration is a key enabler, with a focus on drilling around the existing operations in other areas, including Deep Dell, and we are looking at our mine plants and how we can convert some of our resources into reserves through more optimal mining.

While the Round Hill project continues to advance with exploration around the Golden Point yielding positive results as well.

I will now turn over to Scott McQueen to discuss our financial performance. Thank you.

--------------------------------------------------------------------------------

Scott A. McQueen, OceanaGold Corporation - Executive VP & CFO [4]

--------------------------------------------------------------------------------

Thank you, Michael, and hello, everyone. As illustrated by both Mick and Michael's comments, the company had a strong quarter of operational performance and unsurprisingly that's also reflected in an equally strong financial performance as illustrated in the next few slides.

Turning to Slide 15, where we have the financial results overview. Here, you can see a steady period-on-period increase in top line revenue, with the current quarter sitting at USD 206 million. The year-on-year trend reflects not only higher prices but also the inclusion of Haile's commercial operations post Q4 2017. That addition has been partly offset by the expected grade driven year-on-year reduction in production from Didipio and to a lesser extent, Waihi.

The quarter-on-quarter revenue increase reflects higher sales volumes, partially offset by a $0.035 reduction in average gold prices received.

On pricing, I would also highlight that the impact of the recent fall of sustaining copper prices, should they continue, will have a reduced impact on us for the balance of 2018, given we've hedged 80% of that to our forecast 2018 copper production at $319 a pound.

The second half of the year, that equates to about 6,000 tonnes or for our North American (inaudible), that's about 13.2 million pounds of copper in the second half.

Moving down, you see our EBITDA also increased quarter-on-quarter, consistent with the revenue. As Mick mentioned, we continue to deliver strong EBITDA margins with the second quarter achieving 52%. But as -- also as mentioned by Mick, our EBITDA margin remains at the top tier gold producers.

We recorded equally strong net profit after tax of USD 45 million or around AUD 16 million for the Australian listeners. While that's flat compared to quarter 1, the second quarter included higher operating profits which were offset below the line through lower unrealized gain on hedges. You might recall in the first quarter results, we included the $6 million unrealized gain on our copper hedge. And the second quarter also included the write-off of some exploration costs related to tenements no longer considered expected in the U.S.

Moving to Slide 16 which provides the information on our cash flows for the quarter, in the half. As you can see, cash flow generation remains strong, with operating cash flow increasing by 41% quarter-on-quarter. That increase reflects a combination of higher revenue and a reversal of what we saw in quarter 1, a positive movement in working capital.

Cash flow used for investing purposes was relatively flat quarter-on-quarter, at about 18% lower year-on-year. The year-on-year reduction largely relates to the completion of construction and commissioning of Haile that took place in the first half of 2017. There's some additional detail on the next slide in regard to our capital investment program that I will take you through.

Financing cash flows for the quarter were relatively modest. The quarter-on-quarter increase driven by the inclusion of our dividend payment in April.

Moving to Slide 17. As I said, a bit more detail on where the CapEx has been spent. On a quarter-on-quarter basis, we have -- we've seen a small pickup in the level of exploration and general operating CapEx. The latter being somewhat typical with our general operating CapEx with projects built progressively across the year.

Growth capital was relatively flat quarter-on-quarter, with the spend relating primarily to the Haile process plant, with the pebble crusher in particular. It also progressing the broader Haile expansion. It's also related to continue the development of the Panel 2 underground at Didipio and of course, the Martha Project at Waihi.

Mine development increased the cost of tracking according to plan with the bulk of its investment occurring at Haile and Macraes. I'd also highlight that H1 -- the first half pre-stripping and mine development is higher than what we expect to see in the second half.

Exploration's been focused primarily around Haile, and of course Martha underground, along with greenfield work at WKP in New Zealand and the Argentine exploration JVs, both of which are included in the corporate column at the bottom right. But overall, I think our capital program is tracking according to guidance at this point.

Moving to Slide 18. Just a little bit of detail on our balance sheet, our liquidity and debt position in particular. I'm particularly pleased to report that we ended the quarter in a stronger financial position, thanks to our equally strong financial and operating performance. Our cash balance increased 45% quarter-on-quarter and net debt was reduced by 58% relative to this time a year ago. As a result, we closed the quarter with a net of $130 million of cash in the bank.

In the second quarter, we also completed several amendments to our revolving credit facility. Both on the strong outlook of the business, we were very pleased that our entire existing bank group all committed their ongoing support. Under the amended terms, we've extended the tenure of this facility by 12 months to 2020, which means our next required schedule repayment of $50 million is not up until 31 December 2019.

The balance of the facility matures at the end of 2020, and the amendments also included the revision of a number of covenants, which reflected the expanded operational footprint of the business as well as the stage maturity of the assets. We also achieved a reduction in average margin on the facility.

We believe the amendments give us the flexibility to do a number of things, including maintaining lower effective debt levels, allowing us to use our cash flow to make discretionary repayments against that facility. It also ensures we can progress to the numerous exciting organic growth opportunities we have across the portfolio and also continue to provide returns to shareholders as we've just seen through the dividend we declared today.

Our total debt now stands at $232 million, $200 million of which relates to the revolving credit facility, and $32 million in equipment leases. When considered in line with our strong cash position, we had a very low net debt at approximately a $104 million at the end of June 2018. All in all, a very strong set of financial results for the quarter, and a very robust position we find ourselves in at this point in the year. I'll now hand over to Craig, who will discuss some of our latest exploration results.

--------------------------------------------------------------------------------

Craig A. Feebrey, OceanaGold Corporation - Head of Exploration and EVP [5]

--------------------------------------------------------------------------------

Thanks, Scott, and hello, everyone. I've got a couple of slides that I'll discuss in order to highlight the recent drill results that we've released for Waihi and WKP.

Moving to Slide 20, the first of 2 slides. As Michael mentioned earlier, we continued to drill from multiple grill platforms along 2 underground drill drives at Martha. It's an extensive drill program comprising around 47,000 meters, scheduled over 2018 and 2019 to test the exploration target as defined and delineate further resources.

As a reminder, the exploration target in the Martha underground ranges from 3.5 million to 5 million tonnes, with a grade of between 5 and 7 grams. And looking at 500,000 to 700,000 ounces. We've got a very good understanding of the geology here. And when we couple that knowledge with historical data and recent drill results, our confidence in increasing the resource improves. And that confidence is reflected in our mine life extension plans as discussed with the regulators, community and other stakeholders today.

You see from the slide and our latest Waihi news release that we continue to see significant mineralization from the Martha and Empire veins. We're hitting structures where we expect them as well as additional mineralized veins not included in our exploration target model.

I'd just like to highlight this is a substantial exploration target, with a combined strike of the 4 major structures. That's Martha, Empire, Royal and Edward veins, at 3.2 kilometers with a vertical extent of around 500 meters.

Moving on to Slide 21 in WKP. We're very excited about the prospects of WKP, with significant drill results continuing to be rezoned from the 2 drill rigs currently zoning. There are 3 major structures that we're targeting, with East Graben vein being structure we'll focus on for the remainder of this year's program.

As you can see from the listed significant intercepts on the right, which are really a subset of a number of other important intercepts included in our latest press release, we're looking at mineralization that is akin to what has been and continues to be mined from Waihi. That is good with in the case of the East Graben vein averaging around 7 meters and 12 grams per tonne gold.

It is, of course, early days and we've got a lot more drilling ahead of us over the course of the next 2 years. However, we're very excited with the drilling results to date, and we'll continue to focus on that East Graben vein over the course of this year. Overall, exploration across the business is going very well, not just at Waihi or in Coromandel, we're also achieving good results at Haile, Macraes, and Didipio, and we'll provide the market with updates in due course. I'll now pass it back to Mick to wrap up today's presentation.

--------------------------------------------------------------------------------

Michael Francis Wilkes, OceanaGold Corporation - President, CEO, MD & Director [6]

--------------------------------------------------------------------------------

Thanks, Craig. Thanks, Scott. Thanks, Michael. Before we start the Q&A session, I just wanted to add an outline to our priorities for the remainder of the year, and close out with one last thought for your consideration.

As I mentioned at the offset of the webcast, we are at a very good place right now. Our operations are performing well, delivering on production targets and generating solid cash flows. Haile continues to demonstrate its top tier status. Didipio continues to shine operationally, financially and socially. Macraes is generating some very good cash flows. And with a significant resource base, we do have optionality there. And finally, it's clear that there is a lot more mine life at Waihi. A lot more than what The Street is attributing to it, for sure.

For the remainder of the year, we expect production in the second half to be similar to the first half while cash flows remain strong. Our organic growth opportunities are all achieving -- I'm sorry, all advancing well, while exploration continues to demonstrate that we are operating in prolific gold belts. We will continue to drive further efficiencies at all our operations, whether it be through productivity improvements or the implementation of technology.

We're on track to deliver our increased guidance while continuing to be one of the highest free cash flow yielding gold companies, with solid margins that deliver strong returns.

So ladies and gentlemen, that concludes the formal presentation segment of our webcast. We will now take some questions over the phone, and I'll turn the webcast over to the moderator to facilitate those questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question is from Michael Slifirski from Credit Suisse.

--------------------------------------------------------------------------------

Michael Slifirski, Crédit Suisse AG, Research Division - MD [2]

--------------------------------------------------------------------------------

Yes, I've got 3 or 4 questions, if I may. First of all, Craig, the WKP targets. I want to understand the points you've got there. The size that you describe it as, but saying it's open in all directions. So just -- don't mean to be semantic, but the 750 meters by 250 meters by 7 meters, we can just do maths around that, and with your projected grade, see what the potential endowment is. Is that the right way to think about it? And secondly, you're saying open in all directions meaning that those dimensions get bigger, or that simply that's the target that you're yet to drill to?

--------------------------------------------------------------------------------

Craig A. Feebrey, OceanaGold Corporation - Head of Exploration and EVP [3]

--------------------------------------------------------------------------------

Yes, thanks, Michael. With respect to the first point, yes, the dimensions we provide there are based essentially on 6 holes that were drilled at approximately a 120 meters basing to give us that strike length with a buffer either side. The dip direction, you can see, I think was in the latest press release. As the preferred host, we think it's the right line although we see mineralization and economic widths and grade in the (inaudible) site below. Certainly, a long strike, we're continued to map that structure and it continues either as veins or alteration. You could argue in the dip direction, it could be constrained at least in the area we're drilling because we don't know outside of that and the geology does change, we think, in terms of that end of sight. In the dip direction, it may be constrained by the undifferentiated (inaudible). So in the section we're looking at, that will cover in the area that we drilled approximately 350 meters, I guess.

--------------------------------------------------------------------------------

Michael Slifirski, Crédit Suisse AG, Research Division - MD [4]

--------------------------------------------------------------------------------

Secondly, perhaps, with respect to Haile, there's been quite a number of comments from (inaudible) recent quarterlies about some productivity issues and work to be done. Just want to understand what the challenge has been there, in that new mine, new training. When you look at the productivity you've achieved at Macraes, why can't that be transferred across? Is it a cultural issue? Is it a sort of skilled issue? What, is it an equipment issue? What is it that you're not being able to achieve at the Haile today that you've achieved elsewhere?

--------------------------------------------------------------------------------

Michael Francis Wilkes, OceanaGold Corporation - President, CEO, MD & Director [5]

--------------------------------------------------------------------------------

I suppose when you look at it, it's the combination of a lot of issues which are similar to ones that you've talked about, it is basically new mining district within the U.S. It is an area that has, I suppose, a lot of difficult mining conditions at the top of the ore body, with the separate lots (inaudible). And so it's just understanding that, as well as gaining a workforce that is relatively new to the mining areas. So we are using the experience that we have at Macraes with some of the people that we do go -- that have been over there to assist in the operations, but really it is a mining operation that's just starting up in a new district, and we're just going through a bit of those teething issues as we work -- as we move forward.

--------------------------------------------------------------------------------

Michael Slifirski, Crédit Suisse AG, Research Division - MD [6]

--------------------------------------------------------------------------------

If we look at be -- as I say, if you look at the cost you're digging for mining versus what your aspiration costs were in the 43101, is that sort of cost aspiration, if I recall, was around $1.80, I'll just stand corrected. Is that still what you're targeting or has something sort of structurally changed?

--------------------------------------------------------------------------------

Michael Harvy Lou Holmes, OceanaGold Corporation - Executive VP & COO [7]

--------------------------------------------------------------------------------

No, I don't think it means structurally has changed, Michael. We are targeting that price, and we're working on towards that price. We are making sure that we have the right equipment, and that price sort of includes some equipment that we still have to purchase, as well as moving some additional tonnage. So we're ramping up the throughput and the movement of tonnes, but also getting some additional equipment to do that which, is the right size equipment. So they larger 789s and 785s. So the mine, we're kind of mixing it with the 777s and 785s at the moment.

--------------------------------------------------------------------------------

Michael Slifirski, Crédit Suisse AG, Research Division - MD [8]

--------------------------------------------------------------------------------

Thirdly, Macraes' comments about life extension. And I can't remember how that was to be achieved, or what the wording was about more optimal mining or something. I just want to understand really, what's the presumably, there's something that you've defined already? Is it further cutbacks of ore pits with different economics? What's the target you've identified that might extend mine life beyond the current visibility?

--------------------------------------------------------------------------------

Michael Harvy Lou Holmes, OceanaGold Corporation - Executive VP & COO [9]

--------------------------------------------------------------------------------

Yes, it is -- currently, the drilling is continuing in the brownfield areas. So we're continuing to drill out Coronation ore body, continuing to drill the Coronation ore, as well as the Deep Dell. And looking at the potential for the Frasers, continuing on that as well. Also, some of the, it's just the timing issue with regards to unlocking the value with the Frasers west pit which we've got towards the end of the life of mine and the opportunities there and the Frasers west pit and the Frasers material as well.

--------------------------------------------------------------------------------

Michael Slifirski, Crédit Suisse AG, Research Division - MD [10]

--------------------------------------------------------------------------------

Okay. And then finally, with respect to Waihi permitting, it's not clear in my mind what the steps are to that ultimate time frame that you've defined. So in terms of milestones that we should be looking for, public health, just consultations, so on, where the challenges going forward that might sort of see you do better or worse in your time frame?

--------------------------------------------------------------------------------

Michael Francis Wilkes, OceanaGold Corporation - President, CEO, MD & Director [11]

--------------------------------------------------------------------------------

Yes, look. The processes you go out to initial public consultation, and that's the ongoing feedback from the locals, as well as the regulatory and the government bodies. Then we put in the applications, so we've actually put in the permit application now. And so that's -- that process is a couple of months process where we've put it into the council. The councils review our permitting. Our application and they come back with requests for information. So it's just normal sort of due diligence on the work that we've put forward and some queries. Then that goes then to council hearings, and then just depends on whether the council hearings, whether the issue gets resolved or whether that requires further steps in the process, which then goes to an environmental court. And so hence, so the time frame we've given on that total process is 18 months. If things get resolved earlier, then it's generally before the 18-month process. I suppose the advantage that we have got, Michael, unless we've explained before, is that this process is not new to Waihi. What we're asking and what we're currently doing, with regards to mining under the pit and mining in the areas that we are mining, has all been done before in previous consent. So the beauty and the value is that there's nothing new, and everybody sort of understands the process to go through. So that -- I suppose that's the process. We've added the additional sort of understanding in the time frame based on historical earnings, and that's why we've sort of forecasted the 18-month process.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

Your next question is from Mick Sroba from Macquarie Capital.

--------------------------------------------------------------------------------

Michael Sroba, Macquarie Research - Research Analyst [13]

--------------------------------------------------------------------------------

Just a couple of questions from me. On Didipio, there have been some media reports that suggest that the gold producers are in the clear, with respect to the mine audits. Is this your understanding, and what's the timing looking like for, say, formal approval there?

--------------------------------------------------------------------------------

Michael Francis Wilkes, OceanaGold Corporation - President, CEO, MD & Director [14]

--------------------------------------------------------------------------------

Yes, thanks, Mick. Yes, that's correct. The reports are accurate and consistent with what we've seen on the ground. Our experience with the MICC audit team was very positive, and we've got terrific feedback from the audit. And the -- what was reported in the press was that the 4 mines that were under a cloud, still were all(inaudible) mines which is fundamentally the issue that the government is grappling with. So as before, we're very confident that this process will see us in the clear. There are meetings and steps being taken by the department, the Department of Environment and Natural Resources, MICC is presenting their findings publicly at the end of the month. And we expect some positive news soon after that, although I'll pull out short of making a prediction.

--------------------------------------------------------------------------------

Michael Sroba, Macquarie Research - Research Analyst [15]

--------------------------------------------------------------------------------

Okay, great. Thanks for the update. And so on Didipio, how is the stoping performance been so far from the 2 stopes that were mined during the quarter, in terms of dilution and managing the water inflows there?

--------------------------------------------------------------------------------

Michael Francis Wilkes, OceanaGold Corporation - President, CEO, MD & Director [16]

--------------------------------------------------------------------------------

Yes, good. The stopes have come out very clearly. As Michael mentioned in his presentation, we actually took a double expense stope as a trial in the monzonite. The monzonite is a stronger material, and that held up really well, so that augers well for either double height stopes or double width stopes. Well both, in the future which will reduce the unit cost per tonne. And in the Breccia area or the other parts of the ore body, those stopes are performing well. The pump station is the -- the pump station #1, capital pump station #1, is firing and we're seeing water levels drop in the mine as a result. So all under control.

--------------------------------------------------------------------------------

Michael Sroba, Macquarie Research - Research Analyst [17]

--------------------------------------------------------------------------------

Okay, great. And my final question. Are you able to give us an indication on the improved marginal or the blended interest rate on your long-term debt that you've been able to push back further 12 months?

--------------------------------------------------------------------------------

Scott A. McQueen, OceanaGold Corporation - Executive VP & CFO [18]

--------------------------------------------------------------------------------

Yes. We take about a 15% reduction in margin, not 15% growth, obviously, but the 15% relative reduction in margin.

--------------------------------------------------------------------------------

Operator [19]

--------------------------------------------------------------------------------

(Operator Instructions) Your next question is from Chris Thompson from PI Financial.

--------------------------------------------------------------------------------

Chris Thompson, PI Financial Corp., Research Division - Head of Mining Research & Precious Metals Analyst [20]

--------------------------------------------------------------------------------

Just got 3 questions here. We'll start off with Haile. Just trying to dig in, just trying to understand what sort of grade profile we can expect for the back half of this year? You did mention that we can expect more tonnes offsetting lower grades. Are we looking at grades similar to the Q2 or the Q1?

--------------------------------------------------------------------------------

Michael Harvy Lou Holmes, OceanaGold Corporation - Executive VP & COO [21]

--------------------------------------------------------------------------------

Slightly lower in this, in the third quarter, and then a little bit better in the fourth quarter. But it's just as we're sort of -- the mining at the bottom of the (inaudible) pit and then starting to snake zone -- the Snake pit, and as we go through the snake pit, we'll be getting the better grades as we mine a little bit deeper there. That won't present itself until the back end of the year.

--------------------------------------------------------------------------------

Chris Thompson, PI Financial Corp., Research Division - Head of Mining Research & Precious Metals Analyst [22]

--------------------------------------------------------------------------------

Just on Didipio, I just want to understand a longer term ramifications of the change in the mine plan here. So looking at these, the unit costs for instance on a mining unit cost side of things, I mean, can you give us an idea of what the unit costs are right now, from underground?

--------------------------------------------------------------------------------

Scott A. McQueen, OceanaGold Corporation - Executive VP & CFO [23]

--------------------------------------------------------------------------------

Yes, it's reported in the MD&A, Chris, but it's $45 a tonne, starting cost. And target, once we fully ramp up, is $37.

--------------------------------------------------------------------------------

Chris Thompson, PI Financial Corp., Research Division - Head of Mining Research & Precious Metals Analyst [24]

--------------------------------------------------------------------------------

And then just to give us a sense of the mix, the mill feed mix between your stockpile and your underground ore. I mean, are you still going to be pretty consistent at current levels?

--------------------------------------------------------------------------------

Michael Francis Wilkes, OceanaGold Corporation - President, CEO, MD & Director [25]

--------------------------------------------------------------------------------

No. Chris, that's -- we're increasing -- we're ramping up the underground. So this year, we're expecting a 500,000 to 600,000 tonnes out from underground so that then gets supplemented with 3 million tonnes from the open pit. We'll ramp that up next year to around 1.2 million to 1.3 million tonnes to 2020, where we're at a run rate of 1.6 million tonnes. So at 1.6 million tonnes, you're basically feeding sort 2 million to 2.2 million. So the stockpile ratio will come down as we ramp up the underground.

--------------------------------------------------------------------------------

Chris Thompson, PI Financial Corp., Research Division - Head of Mining Research & Precious Metals Analyst [26]

--------------------------------------------------------------------------------

All right. But considering the new mine plan on that, there is no adjustments as far as the mix of -- between ore types?

--------------------------------------------------------------------------------

Michael Francis Wilkes, OceanaGold Corporation - President, CEO, MD & Director [27]

--------------------------------------------------------------------------------

No. It's -- the optimal(inaudible) sort of underground production throughput rate, we've got us at $1.6 (inaudible). We should achieve that year-on-year but that'll be from 2020.

--------------------------------------------------------------------------------

Chris Thompson, PI Financial Corp., Research Division - Head of Mining Research & Precious Metals Analyst [28]

--------------------------------------------------------------------------------

Yes, I got that. And then just finally, just Waihi, if you've got an idea of when you can anticipate a revised resource update, or are we going to wait for the wrap-up, I guess, the annual resource updates announced sort of March next year. Can we anticipate anything earlier?

--------------------------------------------------------------------------------

Michael Francis Wilkes, OceanaGold Corporation - President, CEO, MD & Director [29]

--------------------------------------------------------------------------------

Yes, Chris, we will put out an update in the near future, based on the drilling that's been completed to date for the Martha underground. I think we've flagged that previously. So we've done about 1/3 of the drilling so far, and we'll give that update in the near future.

--------------------------------------------------------------------------------

Operator [30]

--------------------------------------------------------------------------------

Your next question is from Raj Ray from Desjardins Securities.

--------------------------------------------------------------------------------

Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [31]

--------------------------------------------------------------------------------

Just first, I think off on Didipio. At the end of Q2, in the D&A you mentioned that you had around 246,000 tonnes of high grade ore, at 3.13 grams per tonne. Is that all going to be processed in Q3 as well?

--------------------------------------------------------------------------------

Michael Francis Wilkes, OceanaGold Corporation - President, CEO, MD & Director [32]

--------------------------------------------------------------------------------

No, that will be processed over the remaining of the year and possibly going into the following year.

--------------------------------------------------------------------------------

Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [33]

--------------------------------------------------------------------------------

Okay, and then while still on Didipio, you mentioned that your widening the, you have looked at widening the stope size, what percentage of your stopes over the life of mine is in the monzonite?

--------------------------------------------------------------------------------

Michael Francis Wilkes, OceanaGold Corporation - President, CEO, MD & Director [34]

--------------------------------------------------------------------------------

Yes, the monzonite take the majority of the percentage. I think off the top of my head, it's between 60% to 80% of the materials in that monzonite. But it's just really understanding the location of the monzonite besides the Breccia and other structures within the ore body. So with the trial that we've done, as Mick's mentioned, we've sort of done a doubled width span stope, so 20 x 20 x 30. It was 20 x 40 x 30. We'll also look at the opportunity for double height stopes at 20 x 20 x 60. So that -- those have always been potentials that we've identified, and we've trialed it and it's been successful. And so we're just looking at what are the other opportunities and how much we can sort of adjust the mine plan to take into that consideration.

--------------------------------------------------------------------------------

Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [35]

--------------------------------------------------------------------------------

So Michael, if I remember correctly, from a technical report, average development per month, that was estimated, was around 550 meters. Let's say you go ahead with this, doubling the size of the stope, increasing the height, have you estimated how much reduction in your development would you get out as a result of that?

--------------------------------------------------------------------------------

Michael Harvy Lou Holmes, OceanaGold Corporation - Executive VP & COO [36]

--------------------------------------------------------------------------------

We're still working through that, Raj.

--------------------------------------------------------------------------------

Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [37]

--------------------------------------------------------------------------------

Okay. And then, one last question maybe for Stephen. Stephen, if you look at the corporate G&A for the first half of the year, it's almost $28 million so puts us at a run rate, around 56. Can you tell us what's included in the corporate G&A and what should we be looking for on a steady basis?

--------------------------------------------------------------------------------

Scott A. McQueen, OceanaGold Corporation - Executive VP & CFO [38]

--------------------------------------------------------------------------------

So Raj, I would note(inaudible) the G&A's jumped up a little bit really in the second quarter, and that reflects the change in the way we're treating excise tax in particular in the Philippines. And up until in the end of the first quarter, historically, excise tax in the Philippines had been capitalized, because we're in what we call the recovery period under our SG&A. So moving forward, there will be a step-up due to a reclassification of that 4% of gross revenue. But beyond that, the court -- the G&A includes all corporate costs or project development exploration things like cost that comes through corporate expenditure, and all other below the line taxes in the Philippines, including local business taxes, real property taxes, et cetera, appears in that line in the financial statement.

--------------------------------------------------------------------------------

Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [39]

--------------------------------------------------------------------------------

Okay. And so if you look at the second half of the year, do you expect it to be the same run rate as Q2 or more than that?

--------------------------------------------------------------------------------

Scott A. McQueen, OceanaGold Corporation - Executive VP & CFO [40]

--------------------------------------------------------------------------------

Closer to the Q2 run rate in Q1, given the excise tax change in classification.

--------------------------------------------------------------------------------

Operator [41]

--------------------------------------------------------------------------------

There are no further questions at this time. Please proceed.

--------------------------------------------------------------------------------

Michael Francis Wilkes, OceanaGold Corporation - President, CEO, MD & Director [42]

--------------------------------------------------------------------------------

Well I thank you, everyone. That concludes our webcast and conference call. There will be a replay available on our website later today. On behalf of the team, Michael, Scott, Craig and myself and the rest of the team have put it together, thank you for joining us. Should you have any follow-up questions, please don't hesitate to contact our excellent Investor Relations team. Bye for now.

--------------------------------------------------------------------------------

Operator [43]

--------------------------------------------------------------------------------

Ladies and gentlemen, this concludes your conference call today. We thank you for participating and ask that you please disconnect your lines.