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Edited Transcript of OGC.AX earnings conference call or presentation 19-Feb-19 9:30pm GMT

Q4 2018 OceanaGold Corp Earnings Call

Melbourne Jun 27, 2019 (Thomson StreetEvents) -- Edited Transcript of OceanaGold Corp earnings conference call or presentation Tuesday, February 19, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Michael Francis Wilkes

OceanaGold Corporation - President, CEO, MD & Director

* Scott A. McQueen

OceanaGold Corporation - Executive VP & CFO

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Conference Call Participants

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* Daniel Morgan

UBS Investment Bank, Research Division - Director and Analyst

* Daniel James Thomas Rollins

RBC Capital Markets, LLC, Research Division - Head of Global Mining Research and Analyst

* John Charles Tumazos

John Tumazos Very Independent Research, LLC - President and CEO

* Michael Sroba

Macquarie Research - Research Analyst

* Raj Udayan Ray

Desjardins Securities Inc., Research Division - Analyst

* Reg Spencer

Canaccord Genuity Limited, Research Division - Mining Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the OceanaGold 2018 Fourth Quarter Results Webcast and Conference Call. (Operator Instructions)

This call is being recorded on February 19 at 4:30 p.m. Eastern time. I would now like to turn the conference over to Mick Wilkes. Please go ahead.

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

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Thank you. Good morning, good evening to everyone, and welcome to the OceanaGold Full Year 2018 Results Webcast and Conference Call.

It's a pleasure to be here with you today to discuss what was another successful and profitable year for OceanaGold. I'm joined on the webcast today with Scott McQueen, our Chief Financial Officer, who will discuss our financial results. Scott and I are actually at Waihi with the Board, visiting this fantastic operation.

Just moving onto Slide 2, the cautionary notes -- cautionary statement. Before we proceed, note 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 that 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 prove to be accurate as future results and events could differ materially.

Please refer to the disclaimer on the forward-looking statements in our presentation.

So Slide #3, the results highlights. We had another solid year of operating and financial performance, and I am very pleased with our consistent performance of generating strong free cash flows and delivering strong returns. We achieved these results despite severe storms and sustained heavy rainfall at Haile. Although there are ups and downs in mining, having multiple operations gives us diversity of production and cash flows, which reduces risk of meeting our goals. In the fourth quarter, it was a solid performance at Macraes, which posted its second highest-ever production.

In 2018, we generated approximately $121 million in free cash flow after all capital investments. On the back of that strong free cash flow, our cash balance increased 55% quarter-on-quarter, while our net debt decreased 38% quarter-on-quarter. Over the course of 2018, we increased our gold guidance twice and even despite the lower-than-expected production for the fourth quarter. We delivered on our production and cost guidance. This marked the seventh consecutive year that we have delivered in -- on both our production and cost guidance.

Our operational performance culminated in record annual revenue of $773 million, while adjusted net earnings for the year was $124 million. We are also very excited about receiving the permits we need to transition the Martha underground project into an operation. This is an exciting outcome for OceanaGold, for the town of Waihi and indeed, New Zealand. As it significantly extends the mine life of the Waihi operation and will deliver significant socioeconomic benefits. We are now focused on implementing the project, while continuing to drill extensively to add resources.

On the back of the strong performance in 2018 and the cash flows we've generated, the Board of Directors has approved our first dividend for 2019. Our dividend policy is a modest one, however. We are committed to delivering returns to shareholders, and this represents an important part of our capital allocation practices.

Moving to Slide 4, and the results overview. On a consolidated basis, our operations produced 533,000 ounces of gold and 15,000 tonnes of copper for the full year, while all-in sustaining cost was $767 per ounce on sales of 532,700 ounces for the full year. We reported record revenue of $773 million for the full year and EBITDA of $364 million. Net year -- full year net profit of $124 million. For the quarter, our earnings per share before accounting in financial derivatives was $0.03 per share, while cash flow per share was $0.12 per share before adjusting for working capital movements. This compares to the analyst consensus of $0.11 per share for the quarter.

Now moving to Slide #5, solid margins and returns. For the 35th consecutive quarter, we delivered a positive return on invested capital, making us the only company to have delivered a positive ROIC every quarter back to 2010. This speaks to how we run our business and how we allocate capital. In fact, when you compare our cash flow generation and earnings over this time, it has been one of the least volatile in the gold industry, that is in an industry that has seen wide ranges of results over the past decade. We strive to deliver consistently positive results over a long period of time like we have for many years. This focus of ours is unwavering. Meanwhile, our 2018 EBITDA margin was 47%, which, again, was one of the highest in the industry, and we expect to continue delivering strong margins. I'm very pleased with our results, however, we have some work to do to enhance our performance and drive further efficiencies at our operations, particularly at Haile, where the safety and productivity rates are opportunities to drive further value.

Slide 6, the operations overview. I will spend a few minutes going through our operational performance for the fourth quarter. I'll also spend some time going through the outlook we expect for each operation this year.

Slide #7, health and safety. Our health and safety performance in 2018 was slightly higher than the previous year, but it was still in line with industry averages. The safety performance is always a focus for us and of critical importance.

The Didipio operations performed well for the year with very strong health and safety performance. Macraes continued demonstrated year-on-year improvement with very strong second half of the year and much stronger safety leadership at site being the driving reason for this achievement. Continuing to embed our workforce safety behavioral programs, which is designed to drive a safety awareness, particularly as we continue to ramp up our Haile and Didipio underground -- Haile operations and Didipio underground operations.

And many of the incidents in 2018 could have been prevented as they were hand-related. As such, we have implemented hand injury prevention programs.

We continue to also focus on our principle hazard management plans with reviews and regular audits, which has resulted in a reduced number of high-potential near miss incidents at our sites, which could cause potential serious harm. What was pleasing to see through the final quarter of the year was the excellent site preparedness and weather event management at Haile and Didipio operations during the multiple severe storm events. During these weather events, we had strong safety and environmental performance with 0 uncontrolled discharges and no incidents.

Moving to Slide 8, and talk about Haile. It has been well-documented now, we had a very challenging fourth quarter at Haile with multiple severe storm events and sustained heavy rainfall. The first storm was tropical storm Florence, which dropped 16 inches of rain on site. And despite this amount of rain, over the course of 2 to 3 days, we safely resumed milling operations and mining operations from the Snake pit. The Mill Zone pit, however, required a few extra days of pumping water out of the bottom of the pit before it could resume mining there. That was our expectation, however, the rain didn't stop and then Hurricane Michael rolled through with more rainfall. This type of weather persisted for the quarter -- throughout the quarter. And all in all, Haile received approximately 40 inches of rainfall from September through to the end of the year. As a result, our mining operations were significantly impacted. We were forced to mine and mill low-grade ore from Snake instead of some higher grades at the lower zones at Mill Zone. Productivity was down, and the clay material just below the saprolites created an even more challenging mining environment.

As mentioned, however, the inclement weather in the fourth quarter wasn't all negative. We were very pleased that we managed our environmental risks and sustained no injuries. We have learned a lot from these weather events and are implementing some changes to our operating procedures during this type -- these types of events.

Also in the fourth quarter, the mill operated well with utilization rates continuing to increase and now greater than 80 -- 95%, which compares to 90% in the third quarter. We were achieving throughput rates, which annualized up to 3.2 million tonnes per year, this achievement along with plant expansion positions us well to mill 3.2 million tonnes next year, which is for the full year -- sorry, this year. We then expect to increase in throughput rates to between 3.5 million and 4 million tonnes in the years ahead.

We have resumed normal operations at Haile despite continued wet weather at the start of the year. We are establishing additional dewatering bores and drainage through the first half of the year, and we now have a contractor assisting with mining and the clay material, which is roughly 4 million to 5 million tonnes over a year -- tonnes a year over the next 2 years.

We remain very focused on driving mine productivity at Haile, unit costs at Haile are higher year-on-year with increased mining unit cost associated with a portion of our mining being contracted out.

We continue an intensive recruitment process geared to upskill our workforce, and what I can tell you is that we are now drawing some good talent from western mining states in the U.S. This year, we will also begin replacing our existing fleet of whole trucks with larger Komatsu 730E and our digging fleets with Komatsu's PC3000 and PC4000 units.

This is a staged replacement, but one that should drive productivity improvements and lower mining unit rates -- mining costs, I should say. Over the past 2 years of mining at Haile, we have had both positive and negative reconciliation. However, through our infill drill program, we continue to better understand the complex geology and can more effectively forecast tonnes and grade.

With all the changes we are implementing, we are confident that mine productivity will increase while unit cost decreased. This year, we expect increased production at Haile compared to 2018, and this is driven mainly by the higher throughput rates. We also expect stronger grades in the second half of the year. Plant expansion works continued this year with the commissioning of the upgraded regrinding circuit and installation -- that's the upgraded ultrafine grinding circuit, and the installation of some additional equipment to achieve a higher throughput rate.

Moving onto Slide 9 and the Haile expansion. We continue investing in the expansion of the Haile process plant. And the investments we've made have yielded positive results already. Since 2017, we have already nearly doubled the throughput rates and had done so with capital cost at or less than what was forecast in the 43-101 technical report. We're currently upgrading (technical difficulty) and the regrinding circuit to achieve finer grind sizes, (technical difficulty) that our design to enhance gold recoveries, particularly at the higher throughput rates. The tower mill is now installed and commissioned and although early days, it has performed well. We are currently completing the punch list associated with the IsaMill installation. We'll commence commissioning of the IsaMill very soon, and I expect to have it fully commissioned in a couple of months. This year, we expect to invest $10 million to $15 million on upgrading the tailings thickener, installing a third cyanide destruct unit, putting in additional tailings line in some ancillary works and then, that represents the main equipment we believe we need to achieve throughput rates between 3.5 million and 4 million tonnes per year. Permitting of the larger open pits and the Horseshoe underground continues to progress well with the Army Corps of Engineers, having filed the notice of intent before the end of last year. We anticipate receiving these permits this year and once they're in hand, we'll mobilize our in-house development team to build the underground. The project directed for the Didipio underground is already being transferred to Haile for the front-end engineering design work.

Over the course of the next few years, Haile's gold production is expected to steadily increase with the Horseshoe underground in production, which, again, we believe it to be in 2021. And ramp-up of underground operations thereafter, production at Haile is expected to be north of 200,000 ounces per year. Costs are also expected to steadily decrease year-on-year. And by 2021, our major capital investments should come off.

On the next slide, Slide 10, there's some photos of the Haile expansion, showing the construction of the tower mill and the IsaMill at Haile.

Moving onto Didipio on Slide 11. In the Philippines, we had another strong quarter and year of health and safety performance and production from the operation. We also continued to manage our environmental risks during the 2 super typhoons near Didipio in the quarter. Production at Didipio in the fourth quarter was lower than in the third quarter, and we had expected this and it's related to the mill feed where we are limited by our permit and can process -- processing up to 3.5 million tonnes, which we achieved in early December.

You may recall that Didipio's original guidance range for 2018 was 80,000 to 90,000 ounces. And through the course of the year, we increased the guidance at Didipio twice and delivered that guidance -- and delivered on that guidance, another strong year for Didipio.

Underground mining continued to ramp up well. We mined approximately 630,000 tonnes from the underground last year, which was higher than what we had originally expected. Mining cost was slightly higher than in the previous quarter. However, as underground operations ramp up, we will see these unit costs drift towards the $36 a tonne that we had initially planned. Hopefully, through the quarter -- through further efficiency such as optimizing mine plants and stope sizes, like what we have done already, we can achieve lower costs. We've also implemented our digital strategy with tele-remote operations from surface where we can remote [bog over] shift change, which will increase productivity and reduce costs.

Looking ahead, Didipio is expected to have a stronger year of gold production in 2019, mainly related to higher grades coming through from the underground, where we expect to mine 1.2 million to 1.3 million tonnes this year, which is double the rate of 2018. We also expect higher grades coming through in the second half of the year. The all-in sustaining cost at Didipio is higher this year, and as we have indicated in our recent news releases, the main driver for the higher reported cost is the inclusion of production taxes, which were previously reported as corporate costs in the all-in sustaining costs. These taxes including excise business and property taxes, we have been paying for the past few years. In previous years, as I said, we reported as the corporate G&A and excluded from our all-in sustaining cost calculation at Didipio.

Going forward, we will continue to report them as corporate G&A but also include them in our all-in sustaining cost calculation. For 2019, production taxes at Didipio amount to approximately $15 million.

Didipio is expected to continue generating strong cash flows as it has for the past few years, while delivering significant socioeconomic benefits to the people at Didipio and the communities and the provinces.

Moving onto Slide 12, Didipio underground. We currently have over 19 million tonnes of stockpiled ore on surface, which we blend with the higher-grade ore from the underground.

At the end of 2019, we had approximately 70,000 tonnes of Breccia Pit stockpiles, which we expect to fully process this year. The development of Panel 2 in the underground is progressing well and once it's completed and ramped up, we expect it to be operating in the full underground mining rate of 1.6 million tonnes per year. As I mentioned, at these higher rates and through further efficiencies, we expect our unit cost to decrease.

We also have great potential at depth beneath Panel 2, which we will start focusing on -- drilling on in the near future.

Moving on to Waihi here in beautiful New Zealand. The Waihi operation had a good quarter with strong -- and a strong year with production coming in just under 84,000 ounces of gold at a strong Tier 1 all-in sustaining cost.

The main story at the moment for us at Waihi, which we are very excited about is the receipt of the consents for the Martha underground project. The Martha underground will significantly extend the mine life at Waihi, which is a great outcome for the town of Waihi in New Zealand and our shareholders. With the receipt of these consents, we will proceed to implement the Martha underground with a dedicated project team to execute on its development. We put together management plans, including noise management, vibration management and detailed mine plans. And in the meantime, we'll continue our extensive exploration program along the underground drill drives to further prove up additional reserves and resources. This is a transformational year for us at Waihi with mining taking place in lower-grade zones in the Correnso Deeps. Production is expected to range between 60,000 ounces and 70,000 ounces. Exploration will be a key focus for us. As I've just indicated, that includes WKP where you have -- where we've had very good results and doubled our exploration budget.

Moving onto Macraes. Macraes had a solid first -- fourth quarter, producing very nice 58,000 ounces of gold and over 200,000 ounces for the full year with an all-in sustaining cost of less than $900 per ounce, a fantastic performance by Macraes last year. In fact, Macraes 2018 output was the second-highest production on record that it's achieved in its 28-year history. It truly is a world-class operation with a world-class workforce.

Macraes safety performance continues to improve and demonstrates that with the right leadership and persistence, strong safety culture can be successfully established. There's still some more work to do to drive continued improvement. We continue to explore at Macraes and seek ways to increase our mines -- adjust our mine plans to extend the mine life beyond 2021, based on the $1,200 per ounce gold price. And as part of the mine life extension focus, there is the potential for a standalone underground operation now, following the successful exploration last year at the Golden Point deposit, where drilling results have demonstrated good grades in lower zones in the ore body. We will continue to investigate the technical and economic viability of this opportunity to unlock further value. I should also point out that Macraes is a large resource with lots of leverage to the gold price. When the gold price returns to $1,500 per ounce, it shouldn't be too far away now, we would then have over 3.5 million ounces currently in our resource that could be economically viable to mine. With that positive note, I will now turn it over to Scott McQueen, our CFO, who will discuss our financial performance. Thanks, Scott.

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Scott A. McQueen, OceanaGold Corporation - Executive VP & CFO [3]

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Thank you, Mick and hello, everyone. It's pleasing that despite the challenges that [mill and hedges] threw at us in Q4, particularly at Haile, as Mick mentioned, that our diverse asset portfolio still delivered solid Q4 results but more importantly, completed what was a strong year of financial performance for the company.

Turning to Slide 16. Here we see a snapshot of how that performance has further strengthened our balance sheet at the end of 2018. I draw your attention to the right side of the slide, which outlines the change in our cash position and debt levels. Across Q4, our cash balance increased 55% due to the $108 million at the end of 2018. That's a 47% increase year-on-year. That includes us paying $50 million off our revolving credit facility that was not due until the end of 2019. The prepayment of that debt is reflected in our total liquidity of $158 million, which now includes that undrawn $50 million component.

It's worth noting that this also excludes about $55 million of market value in marketable securities at the end of 2018. Moving down, you can see our total debt, including leases, that are $176 million relative to our cash position, that gave the company a loan net debt position of $69 million at the end of 2018, which reflects an almost 40% quarter-on-quarter and nearly 60% year-on-year reduction.

Moving to Slide 17. We give a snapshot of our financial results. Top line revenue for the fourth quarter was $183 million, a slight decrease from the previous quarter, due mainly to lower gold and copper sales volume. For the full year, we posted revenue of $773 million. This is up on 2017 with Haile contributing a full year worth of results, but that was partially offset by about 3% to 4% lower year-on-year average gold and copper prices as noted. Nevertheless, as Mick noted, the 2018 top line revenue is a record to the company. EBITDA margins remained strong at approximately 47% across the year.

Fourth quarter EBITDA was slightly lower than the previous quarter, which really reflects the change in the sales mix, with a higher contribution from Macraes, slightly lower copper sales and also the weaker Q4 operating performance at Haile. Net profit for the fourth quarter was $17 million before unrealized gains and losses on derivatives and $124 million for the full year. The slight decrease in net profit reflects the same key drivers that impacted EBITDA that I mentioned previously.

Moving onto Slide 18. A quick overview of our very strong cash flow results. Operating cash flow in the fourth quarter was $96 million, reflecting a quarter-on-quarter increase of almost 50%. That increase largely reflected positive working capital movements relative to the prior quarter. On a full year basis, the operating cash flow remained strong at $346 million, reflecting the high EBITDA margins the business enjoys. Investing cash flow was pretty steady quarter-on-quarter with the key focus areas being the continued plant expansion at Haile that Mick covered and also the ongoing development of Panel 2 at the Didipio underground.

Year-on-year, our investing cash flow decreased to around 13%, reflecting 2017 included the completion of the primary build-out of Haile. I'll touch on that capital spend a little bit more on the next slide.

In terms of financing cash flows, there is a material decrease quarter-on-quarter, given the prior quarter included the payment of the $0.02 dividend and also the $50 million discretionary debt repayment that I mentioned earlier. All in all, our 2018 performance and cash flow generations allowed us to meet our objectives of continuing to divest in our organic growth opportunities across operations and expand our exploration efforts while still reducing debt and finance cost, paying dividends to shareholders and enhancing our balance sheet strength.

Moving to Slide 19. Here, we get a little bit more detail on the capital investment across the corridor. For the full year, we invested around $213 million, excluding closure cost at Reefton. This was at the low end of our guidance range of $210 million to $255 million. For the quarter, we invested approximately $54 million, which as you can see, is broadly in line with the previous quarter.

In terms of growth capital, that was predominantly spent on the plant expansions at Haile, as Mick covered, they are advancing well and consistent with our cost estimates, and also at Didipio where we continue to build out Panel 2 underground and that will progress further through 2019. The bulk of the sustaining capital was tied up with pre-strip at the open pit operations at Macraes and Haile as planned. Also importantly, you can see we continue to invest materially in exploration, which we see as a key opportunity to create value as demonstrated by our positive results across 2018. And I'll hand back to Mick to wrap up the results.

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Michael Francis Wilkes, OceanaGold Corporation - President, CEO, MD & Director [4]

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Thanks, Scott. Just close off the webcast, spending a few minutes to discuss the corporate outlook for 2019.

So if we could move to Slide 21, where we talk about guidance for 2019. You see our guidance 2019, which we released a couple of weeks ago, production in 2019 is expected to be similar to that of 2018, while costs are slightly higher. But we do expect to generate solid free cash flows this year, while we continue to invest in our business heavily and pay dividends. At Haile, we expect higher production year-on-year with increased throughput being the main driver.

Our investments in expanding the plants and upgrading the regrinding circuit is delivering positive results. Our Didipio production is slightly stronger year-on-year, mainly due to grades, and we see higher-grade underground material being coming through, particularly in the second half of the year. And at Waihi, we are in this transitional year but again, we're expecting to return to historic production levels over the next couple of years as we ramp up the Martha underground.

And finally, Macraes production is expected to be slightly lower from what we had a very strong year in 2018, but nonetheless, a very good year expected from Macraes as well as we endeavor to extend the mine life there beyond 2021.

Moving to Slide 22 and the capital guidance. Just spend a bit time talking about our program for capital. We do pride ourselves at being good custodians of capital, which was allocated in -- which has been allocated in a prudent manner and generated strong returns on the capital we've invested as we've demonstrated. Our capital investment program is designed to invest in our future by creating value through either expanding our operations and/or extending their mine lives.

Our 4 operations have sustaining capital requirements for maintenance purposes, for pre-stripping so that we can access the gold-bearing ore and underground capitalized mining. This investment typically ranges from $80 million to $100 million a year for the 4 operations. This is what our sustaining capital investment has been historically, and we expect to invest a similar amount each year going forward for the foreseeable future.

Our exploration investment has steadily increased since 2014 as we have good ground on which to drill and are focused on delivering resource expansions, something that I know the market has been focused on, and the good news is that we've delivered on this, particularly at Waihi. We've increased exploration investments at Waihi, and Craig Feebrey and his team seek to further add significant resources at the Martha Underground and WKP.

We have allocated a budget of $8 million to $10 million for drilling at WKP, which is double what we spent in 2018. And this increase relates to our confidence in that new deposit. We have also signed more joint ventures with junior exploration companies in Nevada and have an opportunity to earn in up to 75% on these projects with modest annual investment.

Finally, on growth capital, at Haile, the Haile 43-101 technical report back in 2016 or '17 stated a pre-expansion capital investment of almost $250 million. This number included $50 million to purchase new fleet. However, we are moving ahead with leasing this equipment which is how we typically source our mining fleet. The 43-101 also included $50 million in downstream lifts of the tailings storage facility in 2021, which is now not -- which is not how we expect the timing to play out and, as is more typical, this will be done progressively over several years like it has been done at other operations like Didipio, as being a recent example.

The 43-101 also calls the $65 million to be spent on the plant expansion. We spent $40 million last year on the plant expansion, and we expect to spend another $15 million to $20 million this year. So in total, this remains consistent with the original budget. Albeit, the timing of that spend was moved forward.

Through these prudent investments, we are well on the way to transforming Haile from a circa 150,000 ounce a year producer to 200,000 ounces a year or more. And at Didipio, the remaining growth capital is to complete the build of Panel 2 of the underground. At Waihi, it's related to the Martha Project, a value-creating project that didn't exist 2 years ago, and is the realization of our stated vision to deliver significant mine life extensions at that operation.

We are very happy with our business and are confident that we're reinvesting our strong operating cash flow into the value-accretive opportunities that will generate sustained value for shareholders well into the future. With the underground at Martha permitting behind us, we can hopefully start getting the value of that -- for the operation. It's no longer a 2- or 3-year operation at Waihi.

And moving to Slide 23, just finally. As we have done over the past several years, we again are focused on delivering on our commitments. We had a strong 2018. And when I look back to this time last year, many investors and analysts had a negative reaction to our guidance and said 2019 would be our year. Well, 2018 was a pretty good one for us. We increased our group production guidance twice and again delivered it. We also managed our capital program prudently, coming in at the bottom of our capital cost range. We expect that 2019 will continue to be a year where we generate strong cash flow, invest in the long-term future of the business through the numerous and exciting organic growth opportunities we have, and provide returns to shareholders.

So with that, we'll hand it over to the -- back to the moderator.

That concludes the formal presentation, and we'll take some questions over the phone. Thank you.

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Questions and Answers

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Operator [1]

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

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Michael Sroba, Macquarie Research - Research Analyst [2]

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It's Mick Sroba here. Just 2 questions. First, can you please clarify the treatment of the excise tax at Didipio? Is that going to be taken out of the cost line on the income statement and included in the G&A? Is that what the treatment is looking like at the moment?

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Scott A. McQueen, OceanaGold Corporation - Executive VP & CFO [3]

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There's actually no change in the presentation on the financial statements. You'll see that is actually called out separately in the financial statements under the G&A indirect taxes. The only change was that line was never -- previously wasn't included in Didipio's all-in sustaining cost. It is now being included as part of the calculation of Didipio's all-in sustaining cost, but it won't change the presentation here. So in terms of your modeling, you do need to be careful that you don't just increase Didipio's all-in sustaining cost and then leave it in the G&A as well because you will be double counting it effectively.

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Michael Sroba, Macquarie Research - Research Analyst [4]

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Yes, okay. That certainly helps. And my other question is on the extent of the negative grade reconciliation at Snake in the quarter. What was the kind of percentage negative reconciliation? And is there increased confidence in the deeper zones in terms of the drilling and geological modeling at Snake and the Mill Zone?

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

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Yes, thanks for that question, Mick. We did have some negative reconciliation at top of the Snake orebody. It seems as though there were some old drilling that was done prior to the previous -- when the mine was first -- drilling started back in 2018 -- sorry, 2008. And these were a half a dozen RC holes that were drilled back then, and there were some areas or sample bias with that. So that created a bit of a model inconsistency at the top of the orebody. But we have been drilling the orebody at depth, and we're seeing much more positive results. So it is a complex orebody, Haile. That's long been known, and geologically, it's complex. So the more we drill, the more we mine, the more we learn about it, the more accurate our estimates are. We had some strong positive reconciliation in the Mill Zone pit last year so there are some swings and roundabouts with this orebody.

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Michael Sroba, Macquarie Research - Research Analyst [6]

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Okay, thanks for that. And are you able to just let us know what the drill hole spacing is on your grade control, for say, the Snake and the Mill Zone?

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

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For grade control, we use the blast tunnels for grade control at -- so I think it's about 10 meters or less.

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Operator [8]

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Your next question is from Daniel Morgan from UBS.

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Daniel Morgan, UBS Investment Bank, Research Division - Director and Analyst [9]

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A question on Haile. Obviously, it was impacted by a lot of weather through Q4. Just wondering if you could update us on how that's progressing this quarter, if the operation's back to full steam? Or is Q1 still going to feel a little bit of the disruption? Just trying to get a feel for how the year might go.

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Michael Francis Wilkes, OceanaGold Corporation - President, CEO, MD & Director [10]

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Yes, look, the rain's only -- they persisted through January -- into January, and we're still recovering from it. So this quarter will be soft again, but we stick by it. We're confident in the forecast for the full year. We're putting a lot of resources at it to get it back on track.

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Daniel Morgan, UBS Investment Bank, Research Division - Director and Analyst [11]

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Yes. So the guidance was put out with the knowledge of the January weather?

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

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Yes. That's correct.

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Operator [13]

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Your next question is from Dan Rollins from RBC Capital Markets.

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Daniel James Thomas Rollins, RBC Capital Markets, LLC, Research Division - Head of Global Mining Research and Analyst [14]

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Mick, just wondering if you could provide a little bit of color on what you are thinking from an M&A standpoint. Obviously, I know you've been looking for a while for a potential another asset. I also do understand that you have a lot on your pipeline existing. But with potential noncore asset sales coming out, potential for earlier-stage exploration projects, where is the team's current focus? And if you're looking at a type of transaction, sort of what are the broad strokes that you would be looking at from a production base, if you are looking?

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

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Yes. Well obviously, we remain interested in opportunities in the market, and there's certainly a certain buoyancy about the gold market at the moment following the 2 major transactions, so -- but we remain disciplined about what we're looking for. Quality assets, things we can add value to, production which is of sufficient size to be meaningful, and something that feeds into our vision of having 6 or 7 mines and basically getting up over 1 million ounces a year as a company. So we remain disciplined in our focus on that. We've got a lot to do with our current portfolio, as you mentioned. And so we're very focused on the expansion of Haile. We're very focused on now getting on with Waihi and really getting the full potential of that done in the daylight. And of course, the ramp-up of Didipio's underground. So we've got a lot to do ourselves, but we've got a team -- a very good team now, the corporate development base in Denver who are actively reviewing opportunities in the market.

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Daniel James Thomas Rollins, RBC Capital Markets, LLC, Research Division - Head of Global Mining Research and Analyst [16]

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And just on Waihi, obviously, still probably going through the mine planning and getting out the reserve resources. But what do you expect -- obviously, this year, and you guys had mentioned this during the site visit, that it was going to be a transition year in 2019. What should we sort of be looking at of a magnitude increase over the next couple of years as you start to bring on the Martha project from a production base? And also, on that point in time, do you expect the costs on an AISC basis to be similar to what you've currently forecast?

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

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Yes. Well, we are transitioning -- this year, we're -- next year, we're mining the last of the reserves at the Correnso deposit, the current underground. And we'll be going flat out to develop the new Martha underground. It's too early to give you a definitive projection on when the ore will be mined from the Martha Underground in a substantial way, but we certainly expect that to occur over the next 12 to 18 months. But we're learning a lot more about the resource, we're finding a lot of gold, we're finding different veins, we're finding about 70% of the target resource is in virgin ground. So that's going to be a focus for us, to development, to get into that first and really maximize the resource recovery from this whole area, which is very exciting.

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Operator [18]

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Your next question is from Reg Spencer from Canaccord Genuity.

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Reg Spencer, Canaccord Genuity Limited, Research Division - Mining Analyst [19]

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Just a quick question around Didipio. Last year in 2018, the processing rates were higher in the first half. That tailed away in the back half. You've previously discussed your annual throughput limitation rates based on your permitting. How should we think about the processing profile, if I can call it that, throughout 2019? Will you look to put more through the mill in the first half and then tail that off in the second half? Or will it be level throughout the course of the year? Just a couple of comments on that, please.

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Michael Francis Wilkes, OceanaGold Corporation - President, CEO, MD & Director [20]

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Yes, I think a similar profile to last year, Reg, is the best answer to that. We live and hope that, that permit will be -- that the application will be granted for increasing the throughput rate above the 3.5. But it's not -- it doesn't make that much deference to the overall performance of the operation because obviously you're treating incrementally lower-grade material for any additional tonnes through the plant. So in your models, I'd be assuming the 3.5 million tonnes for the full year. We used that time productively in December and have done for the last couple of years with maintenance and people taking annual leave and that sort of thing.

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Reg Spencer, Canaccord Genuity Limited, Research Division - Mining Analyst [21]

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Is the suspension order still in place? Is that being lifted? Is there any visibility on clarity? Not that it's obviously impacting your operations, but perhaps optically it would be great to have that issue removed.

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Michael Francis Wilkes, OceanaGold Corporation - President, CEO, MD & Director [22]

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Yes, it is still in place, and as it is nearly all of the other companies that had an order placed on them. So I think I've mentioned it previously that it is a very political subject in the Philippines. And we continue to engage and work closely with the MGB and the DENR, and we have a very good relationship with them. So I'm afraid to say it's business as usual in the Philippines.

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Reg Spencer, Canaccord Genuity Limited, Research Division - Mining Analyst [23]

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Just one little quick question on your credit facility, so that $50 million reduction in 2018. So that was originally scheduled for 2019. So are there any planned reductions in that facility throughout 2019? Or will that be pushed out into 2020?

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Michael Francis Wilkes, OceanaGold Corporation - President, CEO, MD & Director [24]

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I'll let Scott answer that, Reg.

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Scott A. McQueen, OceanaGold Corporation - Executive VP & CFO [25]

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Reg, the $50 million step-down is scheduled to happen on the 31st of December '19. Obviously, we have already repaid that. Whether we do any further prepayments, we'll monitor our liquidity as we go through the year, and then -- but there's no requirement for us to pay anything more this year, no.

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Operator [26]

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Your next question is from Raj Ray from Desjardins Capital Markets.

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Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [27]

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Just a couple of questions. First on Waihi, how should we look at sequencing the Phase 4 pit within the underground -- Martha Underground mine plan over the next 5 years? And what's your expectation for the ramp-up at Martha Underground in terms of how long do you think it's going to take?

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

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I will answer the second question first. I think it will be a couple of years before we get it up to full production, I expect. But it's early days in that prediction. Remember, we have got this consent probably earlier than we expected, which is a very positive thing. But now we're still drilling. We've only drilled 57% of the targeted resource. We've increased the target significantly. So the mine planning is a moving object, so it's difficult for me to put a definitive timeframe on the ramp-up. But the main objective here is to maximize the reserves and the recoverable resource from what's being discovered. On Phase 4, Phase 4 open pit is to cut back on the north wall, which is to recover the 70-odd-thousand ounces that sit in the base of the pit as a result of that pit wall failure that occurred in 2015. That will be scheduled in over the next few years. Any further cutbacks on the pit is subject to further permitting.

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Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [29]

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Okay. And for the open pit, do you have an estimate of what the strip could be for the Phase 4?

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

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I will get back to you on that, Raj. Sam, can fill you in on that detail. I don't have it off the top of my head.

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

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Okay, no worries. And then a quick question for Scott maybe. So the $25 million New Zealand provisional income tax that was deferred to 2020, is that a one-time payment in March? And do you expect any other taxes payable over 2019 for further New Zealand operations?

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Scott A. McQueen, OceanaGold Corporation - Executive VP & CFO [32]

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Yes, thanks, Raj. We do. Effectively, what's happening is you defer the payment of provisional tax through an approved pooling system in New Zealand, so you only end up paying the final installment. So we have a final installment due this year based on our prior years of about USD 15 million in the first quarter of this year. There'll be no payments after that, and we'll make a final payment again in March the following year. So we sort of -- what we're doing is getting out of the provisional tax for the treadmill and only paying on final assessment.

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

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So if I got it correctly, so you're saying there's a $15 million payment this year and another $25 million next year?

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Scott A. McQueen, OceanaGold Corporation - Executive VP & CFO [34]

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The next year is when we spend it on the finalization of the tax returns. I don't have that exact number off hand, but it will be a similar level to this year, broadly I would suspect.

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Operator [35]

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(Operator Instructions) Your next question is from John Tumazos from John Tumazos Independent Research (sic) [John Tumazos Very Independent Research.]

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John Charles Tumazos, John Tumazos Very Independent Research, LLC - President and CEO [36]

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Sorry if I might've missed some of the earlier discussion. This morning, AngloGold mentioned they were putting a couple of mines up for sale and a discovery up for JV. There must be 20 or 30 producing mines for sale these days or good deposits. Could you give us a refresher on how much your firepower is for acquisitions and your point of view now that all these majors want to give away properties?

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

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Well, John, thanks for that question. Yes, you are right. There are a lot of assets that would appear to be coming up. Although, there is nothing definitive at this stage other than the ones that have been mentioned. Look, we run a strong balance sheet. We run a low level of debt. We have a good cash flow from the operation. We have a very good banking facility that is sitting right behind us. And our philosophy has always been to build partnerships with the bankers and with the debt providers, build partnerships with our investors. They come on the journey with us as these opportunities present themselves. The focus has to be on the quality of them. And if everyone's bidding for the same thing and it's average quality, it's probably not a good time to be at the auction. So we remain disciplined, we remain focused and we remain engaged.

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John Charles Tumazos, John Tumazos Very Independent Research, LLC - President and CEO [38]

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Could you give us a flavor for a maximum size or what regions of the world you're willing to venture into and how much you're willing to not spread yourself thin and whatnot?

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

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Look, we are not going to blow our brains out with any major acquisitions and big development projects or anything like that. We are in 3 jurisdictions now. We are focused in Australasia and North America. And we do have an eye on South America as well, but we're not established there at this stage. But we remain open to those regions in the Americas and in Australasia. In terms of size, we are looking at things that can produce us in the order of 200,000 ounces a year and with high margins and low costs.

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John Charles Tumazos, John Tumazos Very Independent Research, LLC - President and CEO [40]

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There may be too many things put up for sale too soon and there could be some properties where the major doesn't want to work on it, so to speak, where there's a reclamation reserve. Forgetting something like Pascua, that's a problem they can't fix. Are you willing to assume liabilities in situations where the upfront payment might not be so large?

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Michael Francis Wilkes, OceanaGold Corporation - President, CEO, MD & Director [41]

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We look at each opportunity on its merits. But that's certainly one that we wouldn't be too keen to take on, depending on the size of it, of course.

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John Charles Tumazos, John Tumazos Very Independent Research, LLC - President and CEO [42]

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Sure, sure. I am sorry to pester you. I just am amazed when I hear the things people are selling.

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Michael Francis Wilkes, OceanaGold Corporation - President, CEO, MD & Director [43]

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It's a very interesting time in the gold market, but we're very focused on our business and our vision and our strategy, so we're working very hard to deliver on that.

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Operator [44]

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There are no further questions. You may proceed.

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Michael Francis Wilkes, OceanaGold Corporation - President, CEO, MD & Director [45]

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Okay, thank you, everybody. That concludes our webcast and conference call. There will be a replay available on our website later today.

On behalf of Scott and the rest of the team, 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.

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Operator [46]

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