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Edited Transcript of OGC.AX earnings conference call or presentation 27-Apr-17 9:30pm GMT

Thomson Reuters StreetEvents

Q1 2017 OceanaGold Corp Earnings Call

Melbourne May 2, 2017 (Thomson StreetEvents) -- Edited Transcript of OceanaGold Corp earnings conference call or presentation Thursday, April 27, 2017 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Craig A. Feebrey

OceanaGold Corporation - Head of Exploration and EVP

* Jeffrey Sansom

* Mark N. Chamberlain

OceanaGold Corporation - CFO and EVP

* Michael Francis Wilkes

OceanaGold Corporation - CEO, President, MD and Director

* Michael Harvy Lou Holmes

OceanaGold Corporation - COO and EVP

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Conference Call Participants

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* Jeff Killeen

CIBC World Markets Inc., Research Division - Research Analyst

* Michael J. Gray

Macquarie Research - Gold Analyst

* Michael Slifirski

Crédit Suisse AG, Research Division - MD

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and welcome to the OceanaGold 2017 First Quarter Results Webcast and Conference Call. (Operator Instructions)

This call is being recorded on April 27, 5:30 p.m. Eastern time.

I would now like to turn the conference over to Jeffrey Sansom. Please go ahead.

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Jeffrey Sansom, [2]

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Hello, everyone, and welcome to OceanaGold's First Quarter 2017 Financial and Operational Results Call and Webcast. Thanks for joining us today.

My name is Jeffrey Sansom from the Investor Relations team at OceanaGold.

On the call with me today in Melbourne are Mick Wilkes, President and CEO; Mark Chamberlain, Chief Financial Officer; Michael Holmes, Chief Operating Officer; Craig Feebrey, Executive Vice President of Exploration; and Edward Sit Woon, the Corp Controller.

In Vancouver, we have Darren Klinck, Executive Vice President of Business Development; and in Toronto, Sam Pazuki, Director of Investor Relations.

Before we proceed, note that all references in the presentation that you're about to hear adhere to international financial reporting standards, and all financial figures are denominated in US dollars, unless otherwise stated.

Also note that the presentation contains forward-looking statements which, by their very nature, are subject to some degree of uncertainty.

I'll now turn it over to Mick Wilkes to begin the presentation.

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Michael Francis Wilkes, OceanaGold Corporation - CEO, President, MD and Director [3]

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Thanks, Jeff, and good morning, and good evening, to everybody, and welcome to our fiscal presentation.

I'd just like to start off by mentioning my colleagues, Michael Holmes and Craig Feebrey, joining me today as part of the new format for Oceana, to introduce the market to more of the executives within the company. So we hope to get to know more of the team as time progresses. So welcome, Michael and Craig.

We had a very strong quarter, moving to Page #4. We had a very strong quarter of production, a good start to the year. Almost 150,000 ounces produced and 114,000 ounces sold. The 150,000 ounces includes 20,000 ounces approximately of production out of Haile and the sales are not recorded in the -- the Haile Gold Mine sales are not recorded in the sales figures operations.

Revenue, $162 million. An EBITDA record for the company of $101 million, leading to a net profit, a statutory profit of $36 million for the quarter. Still quite healthy, even after a $17.7 million impairment due to the events in El Salvador, and we have taken that impairment. But before impairment, we had a net profit of $53.7 million.

Cash in the bank is over $70 million, and net debt of $262 million. So still a strong balance sheet and a good position for growth, which we are progressing at pace. The commissioning of Haile is going well, and I can talk a bit more about that. And of course, a very extensive exploration program and engineering studies to advance our organic growth opportunities, particularly at Haile and at Waihi.

Moving to Page 5, some breakdown there. Compared to the previous quarter, production up 44%; copper production up 58%; all-in sustaining costs are down 18% to $521, which is below our guidance for the full year, so that's a good start. And the main contributors, as you can see on the right-hand side in the graph, Didipio had an exceptional quarter, up 32,000 ounces this quarter. And, obviously, Haile, with the start-up there, added to our production of 148,000 ounces for the quarter.

Page #6, just highlighting the very strong business that we are running. EBITDA margin exceptional, over 60%, but continued, consistent strong positive performance in EBITDA margin and in also our return on invested capital. We have been able to have a positive return on invested capital for the last 7 years, and it's forecast to be close to 19% this year.

Moving on to safety. We have had an increased focus on safety to get us heading back in the right direction. We have -- we're still relatively -- performing relatively well in this area, but we would always like to do better. We have increased the engagement of our senior leadership team, one-on-one safety engagement observations and workplace inspections, what we call the Gold Standard. This is designed to improve behaviors across our workforce. And we're also enhancing investigations to learn more about the major hazards in our business and, of course, integrating our systems across the whole company. So there is a big push on safety within the business at the moment to get us heading back in the right direction.

Moving on to Haile, Page #8, and I'm pleased to say that commercial -- sorry, commissioning is progressing very well. We're still on track for hitting commercial production this quarter. We did produce just over 20,000 ounces, 20,798 ounces. And I think, the gold sales for the quarter was around about 12,000 ounces. The operation is now being run by -- sorry, the process plant is now being run by the operations team. And all construction is complete, and the commissioning team have handed over, and they've moved. There are a few people on site just assisting the operations with the ramp-up.

We have outlined there the major criteria for our assessment of the commercial production, and most of those have been met. We are looking now at our cost and recovery and throughput measures and looking for stability in the circuit as we -- before we announce commercial production. But all things considered, it's going as planned.

And on Page #9, you can see the graph showing the ramp-up and a comparison with the successful ramp-up at Didipio, in terms of percent, the nameplate throughput, you see that we've hit the 80% of throughput in the process plant. Recovery is in line with plan. We're fine-tuning the circuit to continue to increase throughput, and we should be announcing commercial production in the next month or 2.

So that's all going well and look forward to further updates to -- over the next couple of months.

The Page #10, just a quick comment about the mining. It's ahead of plan. The picture you can see on Page #10 is a picture of the open pit, where -- at the Mill Zone, where we do have the majority of the base of that pit is in ore. And as a result, we've moved over to the Snake Pit to commence the stripping. We've got plenty of ore stockpiled at good grade, ready for processing.

The optimization study, which is nearing completion, is on track to be released hopefully in the next couple of months, in the middle of this year. And we'll be able to update the market on resources and reserves and the optimization study and the revised production profile, which should be -- you should be very pleased with.

I'll now hand over to Michael Holmes, our Chief Operating Officer, to give you an update on our operations. Thanks, Michael.

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Michael Harvy Lou Holmes, OceanaGold Corporation - COO and EVP [4]

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Thanks, Mick, and good morning, good evening to everybody.

As Mick has noted, so on Slide 11, with Didipio operations overview. As has been noted, we had a record quarter at Didipio, producing 62,748 ounces of gold and 5,955 tonnes of copper. And that's being based on the higher grades of the -- out of the pit at 2.1 grams per tonne gold and 62% copper due to the mining from the bottom of the pit.

It's also being based on the increased mill throughput of 1.01 million tonnes for the quarter, and that's as a result of the softer, higher grade ore being fed from the section of the bottom of the pit. And there has been no extended plant maintenance this quarter as has happened in the previous quarter last year. And this is a result of an all-in sustaining cost for the quarter of negative $105 per ounce sold from the gold and copper sales.

Moving on to the next slide, we are transitioning into the underground mine, with the completion of the Didipio open pit during quarter 2, 2017. At the time of completion of the open pit, we will have 24 million tonnes of ore stockpiled on the surface stockpiles at the grade of 0.54 grams per tonne gold and 0.37% copper average grade.

The underground transitioning will continue with the mining of the decline, and the access to the stope mining blocks in the first opening expected to be produced by the end of this year 2017 and into -- in 2017, on which, when you look at the graph on the right-hand side, you can see the transition from the open pit ore, it's the bottom blue, to the darker brown areas. And an increase in throughput from the underground over the next 3 years, getting up to 1.6 million tonnes per annum.

It's expected that the production from profile -- gold production profile from Didipio will be stronger in the first half compared with the second half, with quarter 4 being the weakest quarter.

Going on to the next slide, Slide 13, just an update with the Philippines and the operations continuing. We are still receiving some global CSR awards, the Summit Awards, where we received the top award for the best workplace practices, and second place for the environmental excellence and third place for best community program. So that was very humbling to receive those awards.

During the process of the quarter, the appeal process with the government and the Department of the Environment and Natural Resources continued, where we submitted documentation within the 30-day timeframe through the office of the President, at which time, we are waiting for the Office of the President to review those documents and make their decisions.

During which, the Mining Industry Coordinating Council has been mandated to review the DENR closure and suspension orders. And that has been committed to complete this review within 3 months of the 1st of April, 2017.

Another exciting opportunity and certainly for us is that, following the awarding of the Presidential Award last year, we have been nominated to represent the Philippines by the Mines and Geosciences Bureau for the Best Mineral Processing plant at the first-ever ASEAN Minerals Awards as well. So looking forward to attending that event.

Going on to the next slide, Slide 14, which is the Waihi Operations overview. The gold production for the quarter was down at 25,860 ounces, with an increase in the all-in sustaining cost. And that's due to some extended maintenance of the equipment that we have and some scheduling of some mining blocks, as well as some increased ore waste -- increased waste development from development [drives], which you can see there on the table on the right-hand side.

The focus for Waihi continues with the mining in Correnso, Daybreak and Christina veins. And the program of looking at advancing the Martha project in the exploration programs, which will be discussed by Craig Feebrey, continues.

If we look at the next slide, which is the Macraes on Slide 14 -- 15, which is the Macraes operations overview. Again, production was in line with expectations at 38,550 ounces, which is down a bit on the previous quarter. And the all-in sustaining costs are up on the previous quarter. Production from the mining in the open pit was decreased due to some lower mill feed from some planned maintenance that we had through the year and an autoclave shutdown. We actually had got some harder ore from the Coronation pit and saw some milder recoveries. This is not expected to continue, and we will be having a stronger second quarter. And a stronger second half production is expected with the commencement of the Coronation North open pit mine, which has been approved and commenced at the beginning -- it's before Easter.

We continue with the organic exploration growth there, and we have good targets. Which now I'll hand over to the Executive Vice President of Exploration, Craig Feebrey, to discuss. Thank you very much.

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

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Thanks, Michael. Good morning and evening, everyone. I'm looking at Slide 15.

On a consolidated basis, reserves stand at 5 million ounces, 5 million ounces of silver and 180,000 tonnes of copper with a significant resource base and growing project pipeline, as a result of increased drilling.

Importantly, we haven't included any changes for Haile based on the large amount of drilling we completed in 2016, which is continuing through 2017, and studies that are ongoing. This work will be completed and reported around midyear, as Mick mentioned. Something that we're certainly looking forward to sharing with the market.

Importantly, exploration made a significant contribution to ounce addition, replacing reserves at Macraes and significantly offsetting depletion of Waihi. Further total resources, that's [made], indicated and inferred increased at Waihi, which reflects in part our increasing appreciation of the potential for resource growth at Waihi in general and the Martha project in particular.

Slide 16. Staying with Waihi, exploration continues to unlock value. This is clear when we consider, we continue to increase the resource base, as shown here from 360,000 ounces as December 2014, through to 570,000 ounces as December 2016, while maintaining our production profile approximately 300,000 ounces over the 2 years.

Slide 17, excuse me. And we continue investing in the future of Waihi through exploration as we're doing across all of our sites in general. The figure shown here, looking to the west, highlights the Waihi mine infrastructure. In particular, I'd like to draw your attention to the Martha pit in brown. The main veins of Martha, Empire, Royal, Edward and Welcome, that extend immediately below the pit that represent the.

(technical difficulty)

The down extension to the east.

In addition to these areas of drilling, the other targets highlighted in the figure on the right, will be advanced during the year, where we've also planned over 40,000 meters of drilling in 2017.

So I'll hand over to Mark Chamberlain now.

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Mark N. Chamberlain, OceanaGold Corporation - CFO and EVP [6]

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Thank you, Craig, and good morning and good evening as well.

I'm turning to slide -- Page 20. The banner says it all, the strong financial performance continues during this period of growth for us. Revenue was up quarter-on-quarter, some 10% to $162 million, the drivers being the increase in gold sales, an 8% increase from the previous quarter, driven by the contribution, strong contribution, from Didipio and also an initial contribution from Haile of some 12,200 ounces, and also a higher gold price, a 5% higher gold price.

EBITDA, again strong, $102 million compared to $67 million in the previous quarter. If I take out the impact of the sale of the 2.5 million shares in GSV, that figure is $96.3 million. So that's driven by the higher revenue. But very pleasingly -- and congratulations to our operations also from having the focus on lowering operating costs, which was some 10% less than the previous quarter.

Net profit, the figure there, $53.7 million. That is before an impairment of some $17 million. And that impairment relates to our investment in El Salvador, which is now completely off the books. So net profit was up before the impairment some 26%.

Impacting it was the higher revenue, but it was also offset by the unrealized loss on the mark-to-market basis of our hedges in gold and oil. We saw a higher gold price and a lower oil price, which impacted on that unrealized -- which impact -- caused that unrealized loss.

At the bottom there, we see a number of the drivers. Gold price up by some 5%, copper prices up 11%. Gold sales up by 8% and copper sales down 16% in line with the sequencing at Didipio.

Moving to the next page, which is from the cash flow statement. The operating cash flow was $52 million, up from $31.6 million. To give a clear understanding of that, we've taken out the working capital figures. And that shows that for the first quarter, it was $93.1 million compared to $67 million in Q4 of '16. That's a 39% increase in the operating cash flow. On the investing cash flow, that's down from the some $100-odd million that we saw in Q4, down to $66 million as would be expected as we bring Haile into commissioning.

And then lastly there, there was a financing cash flow of $2 million-odd, driven mainly by a drawdown of $12 million from our credit facility.

Moving to Slide 22, which set out there our CapEx spend for the quarter. Some -- there was a 41% reduction in the CapEx spend quarter-on-quarter. Looking at that top doughnut, the total CapEx there of $83-odd million, of which the biggest component clearly is Haile, $47.3 million. Just note that, that figure is before we have capitalized revenue on those ounces that have been sold and paid to us, which was some $11.3 million.

The second biggest contribution came from Didipio, and that's primarily driven by the underground project there. And then Macraes and Waihi contributing about $17 million.

We've got there, the figures for sustaining the breakup there, which is $7.9 million for the quarter and exploration, $6.6 million for the quarter, of which 80% was spent at Haile and Waihi.

So just looking at the Haile CapEx again, the $47.3 million, that included capitalized operating costs of $16-odd million. We haven't included the sales revenue there of $11.3 million. And we will do a final reconciliations of costs after commercial production is declared there, which is expected in this quarter.

Moving on to Page 23, where we set out the balance sheet position. Total liquidity at the end of the first quarter was sitting at $96 million, of which $70.6 million was in cash. Just highlight there, we do have $90-odd million in marketable securities, primarily in our investment in GSV and NuLegacy. And our undrawn facility, we had a revolving facility of some $300 million at that date, of which $15 million was undrawn.

That leaves us with total debt for $332 million, mainly comprised of the revolving facility, but also $48 million in equipment leases. And a net debt figure of $262 million, which is relatively low, given the phase we are in of completing major growth. Overall, that leaves us with a net debt to EBITDA of 0.3, a very comfortable position for us.

I'd like to now hand back to Mick, who'll talk about the catalysts for the company going forward.

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Michael Francis Wilkes, OceanaGold Corporation - CEO, President, MD and Director [7]

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Thanks, Mark, and thanks, Craig and Michael.

So we've got some very, very exciting catalysts coming up this year, commencing with the commercial production expected in this quarter for Haile. The ramp-up of production at Haile to achieve 3 million tonnes by the end of this year, which is, I'll remind you, is the limit of our current permit. And the optimization study for Haile, the results of that will be released midyear as well. After which, we then expect to start the permitting process to take the Haile project up to a permit of around 4 million tonnes per annum.

In early June, we've got the quarterly index rebalance for the [GD exchange]. The analyst forecast is that, that would have a -- create a very strong demand for our shares at that time. In -- later in June, we've got an Investor Day in -- we'll be all in Toronto and holding a webcast similar to what we did last year, where you'll be able to get more detailed information on the operations, the exploration and the development projects from the executive group. In early July, we've got these site visits to New Zealand, see the progress that's being made, particularly at our Waihi mine with the underground development and future production opportunities. And similarly, at Macraes.

And then, of course, Q2 results at the end of July. And for Waihi, I should add that we will commence the permitting for the Martha project, which is to extend the mine life at Waihi in the second half of this year.

So with that, I'll hand it back to Jeffrey.

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Jeffrey Sansom, [8]

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Thanks, Mick. At this time we'll open the lines to take questions. For those of you who are seeking to ask questions, we'll be taking them through the telephone only. (Operator Instructions)

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Michael Gray from Macquarie.

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Michael J. Gray, Macquarie Research - Gold Analyst [2]

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I've got 3 on Haile and then 1 on Waihi. At Haile, how was the geological model reconciled to date in terms of tonnes, grade and ounces and particularly in the fresh rock?

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Michael Francis Wilkes, OceanaGold Corporation - CEO, President, MD and Director [3]

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Yes, look, it's being positive to date. No surprises. If anything, it's been up on the grade and tonnes as well. But it's too early to project that forward, Michael. But just suffice to say that it's been properly modeled.

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Michael J. Gray, Macquarie Research - Gold Analyst [4]

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Okay. And what proportion of the Q1 Haile feed was oxide versus sulphide, if you have that breakdown? And what were their respective recoveries?

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

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I don't have the exact details on relative recoveries, but it's about half oxide and half sulfides for the quarter. And of course, we're trading all sulfides at the moment.

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Michael J. Gray, Macquarie Research - Gold Analyst [6]

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Okay. And in terms of commissioning optimization of the process plant, what are the key areas you're focused on in the second quarter and the key areas to be debottlenecked?

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Michael Francis Wilkes, OceanaGold Corporation - CEO, President, MD and Director [7]

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We are just ramping up, and the key focus is continuity in the circuit and ramping up the throughput. So we'll go -- we should hit about 100% of nameplate by the end of the second quarter or early in the third quarter. And bottlenecks appear throughout the circuit, whether it's the thickeners or the fine grinding circuit or the flotation circuit. And they're just minor tweaks here and there, as we improve the process, Michael.

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Michael J. Gray, Macquarie Research - Gold Analyst [8]

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Okay. And finally a question for Craig. At Waihi, just give us an update on the status of synthesizing all the legacy data? And progress in identifying new targets, in particular the Correnso vein orientation, which seems to be fairly anomalous. And what role has oriented core played in trying to nail down new orientations?

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Craig A. Feebrey, OceanaGold Corporation - Head of Exploration and EVP [9]

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Thanks, Michael. Look, it's an ongoing process at Waihi. There's a lot of historic information. But we have brought that into our analysis and planning. It obviously plays a significant role in the Martha project itself. With respect to Correnso, we understand that particular ore body well. Oriented core is used throughout. There are no surprises, I guess, or problems as we see it. It's business as usual on Correnso. We're getting into the deeper portions, obviously, of the deposit. And we're still intersecting good mineralization, particularly on the Northern side.

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Operator [10]

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Your next question comes from Michael Slifirski from Crédit Suisse.

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Michael Slifirski, Crédit Suisse AG, Research Division - MD [11]

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I think that might be me, so I'll speak anyway. I've certainly been called a lot worse on various calls. A couple questions for me, if I please. First of all, the comment around the Coronation hard ore impact, you said most of the impact was the autoclave maintenance, but harder ore [was in] the impact, but you didn't expect it to be a feature of future. Why not, when it's going to be a larger portion of your feed?

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Michael Francis Wilkes, OceanaGold Corporation - CEO, President, MD and Director [12]

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Michael, could you address that question of sulfides, please?

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Michael Harvy Lou Holmes, OceanaGold Corporation - COO and EVP [13]

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Certainly. So there has been a -- it has been a combination. We've got Coronation North (inaudible) in these mill as well as underground as the blend through. So it was the proportions of blend. But also going forward, we'll be starting up the new Coronation North project. So we believe that with that blended ore, the hardness should come down.

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Michael Slifirski, Crédit Suisse AG, Research Division - MD [14]

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Okay. Secondly, with respect to the partial sale of the GSV investment. What's all that about? I guess if I look at your balance sheet, I can see how you stayed strong. But from a liquidity perspective, it looks like cash was getting a little bit tight, the revolver pretty fully drawn. Was that a liquidity-driven decision? Or was there something else behind it? And why only a partial sale?

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Michael Francis Wilkes, OceanaGold Corporation - CEO, President, MD and Director [15]

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Yes, thanks, Michael. Well, look, it was just an opportunity in the market, whereby GSV actually entered into the GDX index in New York, the VanEck index. And so it's a liquidity event. And the share price was running very hot. And we decided to sell into that liquidity event. Our strategy for GSV remains the same. It is a strategic investment for us. And it wasn't a liquidity concern on our part. We have plenty of liquidity in the company. But it was just an opportunity that was created by the market at the time.

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Michael Slifirski, Crédit Suisse AG, Research Division - MD [16]

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Okay. I think I understand that. So thirdly, with respect to the Martha project, that [$1 million odd-some] prize that you're trying to extract. How has your thinking changed? And with respect to what might be extracted from an open pit of modest cutback versus underground? And -- or is it too early? Is the drilling -- does the drilling need to be completed before we can actually see whether there is a more substantial underground opportunity, perhaps easing the permitting challenges?

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Michael Francis Wilkes, OceanaGold Corporation - CEO, President, MD and Director [17]

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It's still around about 70% underground, 30% open pit plane. The -- obviously the open pit is restricted by the infrastructure in the Township. So it's fairly clear as to what size that would be. And the underground is being proved up from the drilling. So I don't envisage anything different to what we've given you before.

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Michael Slifirski, Crédit Suisse AG, Research Division - MD [18]

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Okay, and 2 more. The comment about Haile lead, the 4 million tonne permit application. Just want to be clear, that 4 million tonne, they're U.S. tons, they're not metric tons are they?

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Michael Francis Wilkes, OceanaGold Corporation - CEO, President, MD and Director [19]

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No. They are metric tons.

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Michael Slifirski, Crédit Suisse AG, Research Division - MD [20]

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They're metric tons. Okay, but the existing tonnes you talk about are imperial tons or metric tons? I get very confused, you seem to speak to both languages.

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Michael Francis Wilkes, OceanaGold Corporation - CEO, President, MD and Director [21]

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No, we don't speak both languages. We speak one language, Michael. We -- all the numbers we use are metric tons for our reporting. And so the nameplate capacity of Haile is 2.3 million metric tons. The permit allows us to go to 3 million metric tons, and we're seeking to permit to go to 4 million metric tons.

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Michael Slifirski, Crédit Suisse AG, Research Division - MD [22]

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Okay. Got it. And finally with respect to your guidance for Didipio, I find it somewhat confusing. So you're saying that a midpoint of expectation this year is 120,000. You expect to do more ounces in the first half than the second half, and you've already done more ounces in the first quarter than what's implied by midpoint guidance. You're saying that there's 3.5 million tonnes of throughput expected and you've done 1 million of the 3.5 million already. So how do we put all that together? The math doesn't sort of make logical sense.

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Michael Francis Wilkes, OceanaGold Corporation - CEO, President, MD and Director [23]

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Well, I wouldn't multiply it by 4, Michael. I know you know that. But the -- we are obviously producing very, very well there. We'll probably update guidance for Didipio at the end of the second quarter, but we're tracking to exceed guidance at Didipio. And guidance for the full year will remain the same at this stage.

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Operator [24]

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Your next question comes from Jeff Killeen from CIBC.

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Jeff Killeen, CIBC World Markets Inc., Research Division - Research Analyst [25]

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Just wanted to get a sense on the general scope or the general outlook for this year. It seems to have changed from where you were at, at the end of Q4. I believe at the end of Q4, you had put in your outlook that you would expect the second half of the production to be higher than the first half, and that Q3 would be the strongest quarter. Now we're seeing today it seems like that's changed to be more of a flat profile over the year. So wondering, is this exclusively driven by a change in plan at Didipio? And secondly to that, I'm getting the sense that you're consciously speeding up the open pit at Didipio? Is that fair to say?

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Michael Francis Wilkes, OceanaGold Corporation - CEO, President, MD and Director [26]

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We had planned to spread out production in Didipio throughout the year. But given the events there, with preferentially treated higher grade from the open pit and just showing what potential that operation has.

But of course, with the open pit shutting down this quarter, we're not going to see the same levels of production in the second half of the year. It does, however, bode well for the startup of underground. You see the similar grades coming through from the underground mine in 2018, and then very strongly in 2019 and beyond. So it is an indication of what you can expect in years to come, albeit, somewhat lumpy.

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Jeff Killeen, CIBC World Markets Inc., Research Division - Research Analyst [27]

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Okay. So would you be able to give us a bit more clarity on the second half then from Didipio? You did give us the stockpile numbers in terms of the absolute numbers. I think the grade is just around a half a gram a tonne. Is that a type of grade we should expect in the second half? Or do you think there'll be sort of a slow taper down from where we are in Q2 towards that number in 2018?

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Michael Francis Wilkes, OceanaGold Corporation - CEO, President, MD and Director [28]

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I think a taper would be warranted, but I'd rather defer that guidance until the end of this quarter.

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Jeff Killeen, CIBC World Markets Inc., Research Division - Research Analyst [29]

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Okay, great then. In terms of switching to Waihi. Apologize if I missed this, but the equipment issues that you had in Q1, have those effectively been worked out? And if not, is there any other incremental spend that you see with -- associated with that?

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Michael Francis Wilkes, OceanaGold Corporation - CEO, President, MD and Director [30]

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Equipment is related to loader availability. We did have a loader that was buried in a stud. Which was recovered and is now repaired. So we expect that to -- we've overcome that. And we are sending one of their loaders, a spare loader from Didipio down to -- as a backup at Waihi. So that's a work in progress.

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Jeff Killeen, CIBC World Markets Inc., Research Division - Research Analyst [31]

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Okay. Then lastly for me. I believe in the fourth quarter, there was the $8 million payment that you were required to make in El Salvador. Just wasn't sure if that had actually been made yet or is that something yet to come?

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

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We're following the process set by the arbitration and we're just in discussions with the government now to make that payment in the near future.

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Jeff Killeen, CIBC World Markets Inc., Research Division - Research Analyst [33]

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Okay, great. And then, apologies, one more from me. Just in terms of the outstanding balance on the revolver, what are your plans for what that balance would look like over the course of this year? It would stay flat through Q2 And then start to be repaid through the second half? Any insight there?

(technical difficulty)

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Unidentified Analyst, [34]

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For the remaining 3 quarters on a throughput rate basis, any particular period there where you have waited downtime? And particularly on the cessation of open pit mining, and maybe an extension of Jeff's question earlier, any variability in the stockpiles that you have there where you would pick any higher-grade material within that 0.54 grade material for H2, that we could lean on in our projections?

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Michael Francis Wilkes, OceanaGold Corporation - CEO, President, MD and Director [35]

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First of all, the stockpile is harder. So you won't be getting 1 million tonne per quarter through the process plant in the second half of the year. The -- I would suggest that you model for average grade from that stockpile in the second half of the year. It is possible to choose some higher grade sections, but I don't think we should get into that level of detail about where the stockpile, how it'd be divvied up. The throughput rate is limited by the permit that we have. So we have an application with the government to increase that throughput to over 4 million tonnes a year. But at this stage, we're still planning -- we're still modeling to (inaudible) 3.5 million tonnes. But we are still expecting to get that approval for the increase in the second half of this year. So but for the time being, we'll leave it at 3.5 million. And the throughput rate on that stockpile (inaudible) I don't know, sort of 700,000 tonnes a quarter, thereabouts.

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Unidentified Analyst, [36]

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And maybe just to follow up on the underground development. What level is, I guess, your decline advance now? And how many more meters of development do you need, I guess, by the end of the year to get that first ore to the plant?

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Michael Francis Wilkes, OceanaGold Corporation - CEO, President, MD and Director [37]

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Yes, we'll be at the bottom of the upper levels, where the third pump station will go in, probably by the end of the second quarter. And then, once the pump station is established, we'll be able to start cost cutting for -- into the ore body to start production, which is currently still planned to appear at the end of this year. It could happen a bit sooner, but we're not -- basically, it's on track.

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Unidentified Analyst, [38]

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One final question on Haile. Perhaps if we look at the post commercial production, anticipated gold recoveries, what gold recovery would you look to stabilize at by the end of the year? I guess, at a 3 million tonne per annum metric, right? And what average recovery would you -- are you projecting for the year in commercial production? And I'll leave it there.

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Michael Francis Wilkes, OceanaGold Corporation - CEO, President, MD and Director [39]

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I don't know what the average is for the year, but I think 75% to 80% recovery for the full year. And nameplate recovery of 84% beyond that.

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Operator [40]

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Your next question comes from Russell Smith from [Ulster] Investments.

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Unidentified Analyst, [41]

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I'm trying to work out if the -- what is the total El Salvador exposure, including the $18 million impairment write-off? And including the $8 million costs awarded to the government? And whether the total can be expected to be recovered from future sale of the business tenements and property, et cetera?

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

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Thanks, for that question, Russell. We expensed the $8 million payment last year. It's part now of the full year results. So that was done in the fourth quarter, and the $17.7 million is what was on the books for the purchase of the asset, which was done predominantly in shares, but some cash a number of years ago.

In terms of future sale, obviously, we still have the land there, we still have all the data, and we still have all the core. We would hope at some point that the government or others would want to develop the project. So we'll remain interested in that option.

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Unidentified Analyst, [43]

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We'll look forward to hearing what the strategy is going to be there. Philippines, congratulations on your 3 awards. That's always terrific and not easy to achieve. I'm just wondering, how are you doing with the individual claims for perceived damages, given that all your excellent work for the majority doesn't seem to negate the individual claims and compensate them, and that often the noisy few get the attention of government.

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Michael Francis Wilkes, OceanaGold Corporation - CEO, President, MD and Director [44]

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Well, we have a grievance process on site to deal with individual claims and that's the case at any mine site. The claims you're referring to are not -- I don't really -- I'm not really clear about that, but I assume that what you're referring to ones that have -- that the government has identified and that namely, apparently, blast -- damaged to a house due to blasting. But that was proven to be not caused by the mine. And it was due to faulty construction, which is not uncommon in places, in a lot of places. So we didn't have to pay compensation for that particular incident. And that is another example of the untruths and misinformation, which is being spread by other parties, if they had a vested interest in the operation. So I think, we just need to continue to be open and transparent about the operation, and people who come in the site can see how good it is. And the awards that we're getting continue to demonstrate the quality. I should add that, that latest CSR award that we received. The Global CSR Summit was not just for mining, but for other sectors as well. So, communications, construction industry and other sectors. So to receive the best workplace award against those other sectors, and this is in Southeast Asia at least, is quite a good thing, quite a significant thing. And the other thing is being recognized by the NGB as being put up for the ASEAN Mineral Awards as being the representative from the Philippines is also very significant. And I think it clearly demonstrates that what's happening in the Philippines is not -- the negative stuff that's happening in the Philippines is not the government acting in unison. It is an individual and her supporters acting unilaterally. And until that issue is resolved, I think we are still going to see some noise coming out of the Philippines. And unfortunately, some negative news, which is not necessarily factual.

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Unidentified Analyst, [45]

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Yes, congratulations to you, Mick, once again. You lead the way and you're held up as one of the world's best mining companies from safety. It is noticed now that OceanaGold always puts safety matters first and foremost. And this has been pointed out to other companies in Australia that recently have experienced seismic disruption and have commented on safety matters last of all. So you're a shining light to many others. And frequently held up as that. My third here, and I apologize if I missed this, but just wondering about total hedging exposure? (inaudible)

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Michael Francis Wilkes, OceanaGold Corporation - CEO, President, MD and Director [46]

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Yes, I'll let Mark answer. Yes, thanks.

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Mark N. Chamberlain, OceanaGold Corporation - CFO and EVP [47]

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They're unrealized losses that you saw in the P&L this time. We have to mark-to-mark the hedging, outstanding hedging. The only hedging we have left was that, that was done for Macraes and FRUG, which finalizes at the end of -- comes to end of this year, and that was done at a time when we were concerned that, that operation couldn't -- we didn't want it to bleed against the gains we were seeing at Didipio. So that hedging finishes at the end of this year. The other hedging we have is -- we did on oil when the price was down at $30. Last quarter, we had a mark-to-market gain as the oil price went up. This time, the oil prices dropped down a little bit. And therefore, we've had to write it back. But overall, that hedge is in the money on the oil side. That also concludes at the end of this year, at the end of '17.

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Operator [48]

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

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Jeffrey Sansom, [49]

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That concludes the presentation for today. On behalf of the team of OceanaGold, I'd like to thank you for your interest and participation. And should you have any questions, don't hesitate to contact us directly. Thank you and bye.

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Operator [50]

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