{"id":58109,"date":"2011-05-09T10:01:37","date_gmt":"2011-05-09T00:01:37","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/05\/09\/significant-upside-potential-for-undervalued-oceanagold\/"},"modified":"2011-05-09T10:01:37","modified_gmt":"2011-05-09T00:01:37","slug":"significant-upside-potential-for-undervalued-oceanagold","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/05\/09\/significant-upside-potential-for-undervalued-oceanagold\/","title":{"rendered":"Significant Upside Potential For Undervalued OceanaGold"},"content":{"rendered":"

\n\t– RBS Australia re-initiates coverage on OceanaGold
\n\t– Stock rated a Buy given strong cash flows and growth prospects
\n\t– Dipidio project the major growth driver<\/strong><\/p>\n

\n\t
\n\tBy Chris Shaw<\/p>\n

\n\tFollowing an absence of a few years, RBS Australia has re-initated coverage on OceanaGold ((OGC)) with a Buy rating. The view reflects a number of positives associated with the stock, including strong cash flows and growth options.<\/p>\n

\n\tStrong cash flows stem from OceanaGold's two operating mines in New Zealand – Macreas and Reefton, which are expected to produce 260-280,000 ounces of gold in 2011 at a cash cost forecast by RBS Australia to be around US$730 per ounce. Costs may in fact be lower, as guidance from management suggests cash costs will be between US$645-$685 per ounce.<\/p>\n

\n\tProduction from these assets should continue for several more years, Reefton at present having a five year mine life and Macraes an eight year life based on current reserves. Exploration offers the potential for reserves and mine life at both projects to be extended.<\/p>\n

\n\tThe most significant future growth option for OceanaGold is the 92%-owned Dipidio gold-copper project in the Philippines. RBS Australia estimates this project could deliver an equity share of production of 60,000 ounces per year at an average cash cost of US$260 per ounce, net of copper by-product credits. Currently Dipidio has an estimated 20-year reserve life.<\/p>\n

\n\tDevelopment work at Dipidio is scheduled to commence in the September quarter of this year, RBS Australia estimating capex will come in at around US$170 million. First production is expected in 2013 with OceanaGold guiding to a start in the first quarter and RBS Australia expecting output will commence from the September quarter.<\/p>\n

\n\tGiven a current valuation for Dipidio of 40c per share and forecasts of an 11-year mine life at Macraes and eight years at Reefton, both three years above current reserves, RBS Australia has a base case valuation on OceanaGold of $2.95 per share. Price target has been set at this level, which compares to a consensus price target according to the FNArena database of $4.08.<\/p>\n

\n\tAlong with RBS Australia, both Macquarie and Citi rate OceanaGold as a Buy at current levels. For Macquarie, a current share price for OceanaGold of around $2.60 implies essentially no value for Dipidio is being priced in by the market at present.<\/p>\n

\n\tCiti's valuation and price target are set at $5.00, the broker viewing OceanaGold as the cheapest stock in its gold coverage universe. RBS Australia's numbers suggests something similar, as a 14% discount for the share price relative to net present value is the largest such discount among the gold stocks covered by RBS.<\/p>\n

\n\tWhile RBS's valuation and price target are well below that of Macquarie and Citi, the broker concedes there is scope for upside. This stems from potential for a further increase in reserves, or the application of a gold premium by the market. As RBS notes, there is a tendency for high quality producers to trade at a premium to valuation.<\/p>\n

\n\tWhile rating OceanaGold as a Buy, the stock is not RBS's preferred play in the sector, as among Australian mid-cap producers Regis Resources ((RRL)) remains the broker's top pick. The FNArena database shows Regis is only covered by RBS Australia and Deutsche Bank but both rate the stock as a Buy.<\/p>\n

\n\tOver the past year OceanaGold shares have traded in a range of $2.18 to $4.17, the current share price implying upside of 64% to the consensus price target in FNArena's database.<\/p>\n

\n\t <\/p>\n

\n\t Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/p>\n","protected":false},"excerpt":{"rendered":"

After a break of a few years RBS Australia has re-initiated coverage on OceanaGold with a Buy rating.<\/p>\n","protected":false},"author":9,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6],"tags":[22],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/58109"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=58109"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/58109\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=58109"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=58109"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=58109"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}