OceanaGold Begins Milling Activities at Haile Gold Mine

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- By Alberto Abaterusso

OceanaGold Corp. (OGC.TO) rose 9.14% yesterday, up 34 cents from the previous trading day, and closed at 4.06 Canadian dollars ($3.02) per share on the Toronto Stock Exchange.

The gold and copper miner headquartered in Melbourne, Australia, with assets in the Philippines, New Zealand and the United States, announced on its website yesterday that milling activities at the Haile Gold Mine in South Carolina have begun.


The company said it "expects to produce 150,000 to 170,000 ounces of gold at Haile in 2017 at sector leading all-in sustaining costs between $500 to $550 per ounce."

The gold produced at Haile will bring the company's total gold production up to 610 thousand ounces, a 35.6% increase from pre-Haile's initial production and will lower the overall AISC per ounce to $625, a decrease of 13.8% from the mine's initial production.

The gold producer has a well-diversified portfolio of assets with production of more than 80% coming from friendly mining jurisdictions, which are the U.S. and New Zealand.

OceanaGold is also advancing the Haile Expansion study. The drilling results will be released mid-2017.

OceanaGold is also engaged in the exploration and development of gold and copper projects at Waihi Gold Mine and Macraes in New Zealand, and at Paco and Didipio in the Philippines.

In New Zealand, the miner is developing the surface and underground areas of the mines.

For 2016, the miner expects to produce between 385 thousand and 425 thousand ounces of gold at an AISC of $700 to $750 per ounce. The also expect between 19 thousand and 21 thousand tonnes of copper at cash costs of $460 to $500 per ounce.

As of Sept. 30, the company had $88 million in cash on hand, plus a line of credit of $57 million. Total debt amounted to $298 million, which included $243 million of borrowings and $55 million of capital lease obligations.

The company pays an annual dividend of four cents per share and the dividend yield is 1.34%. Year to date, the gold stock gained 54%. Over the last three years, the stock gained more than 150%. When the latter return is compared to that of its peers, other mid-tier gold producers such as Iamgold (IAG) with 15% and Yamana Gold (AUY) with -66.5%, it shows that OceanaGold is able to deliver a strong performance during bear gold markets.

For 2017, the miner expects to generate an AISC margin (realized gold price per ounce minus AISC per ounce) of $575 per ounce. This has been calculated by the company on the base gold price of $1,200 per ounce and on expected gold and copper production of 580 thousand ounces on average and 16 thousand tonnes on average. The free cash flow yield is expected to be 18% in 2017.

OceanaGold has a market capitalization of $2.48 billion and 611.02 million shares outstanding, of which 608.15 million can be traded on the stock exchange.

The top institutional holder of the company is Tocqueville Asset Management with 20,735,224 shares, valued at CA$81,696,782 as of Sept. 30.

Currently, the company is trading at 1.88 times its book value and 9.83 times its Ebitda. As of today, the recommendation rating is 1.8. The recommendation rating ranges between 1 (Strong Buy) and 5 (Sell).

The analysts' average target price is CA$4.13, up 1.7% from the current price, and ranges between a low of CA$2.80 and a high of CA$4.85.

The price-earnings ratio (TTM) is 21.60 and the EPS (TTM) is 19 cents (Canadian).

As of today, 16 analysts forecast that OceanaGold Corp. will generate an EPS of 20 cents on average for fiscal year 2016, a 33.34% increase from 2015, and an EPS of 30 cents for fiscal year 2017.

Disclosure: I have no positions in any stock mentioned in this article.

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This article first appeared on GuruFocus.


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