{"id":61056,"date":"2012-12-12T14:50:26","date_gmt":"2012-12-12T03:50:26","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/12\/12\/oceanagolds-transformational-potential\/"},"modified":"2012-12-12T14:50:26","modified_gmt":"2012-12-12T03:50:26","slug":"oceanagolds-transformational-potential","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/12\/12\/oceanagolds-transformational-potential\/","title":{"rendered":"OceanaGold’s Transformational Potential"},"content":{"rendered":"

\n\t– OceanaGold's<\/span> gold production in NZ is high cost
\n\t– The Didipio<\/span> project in the Philippines is anticipated to transform the company
\n\t– Didipio<\/span> offers low costs and long mine life<\/strong><\/p>\n

\n\t <\/p>\n

\n\tBy Greg Peel<\/p>\n

\n\tWhen one thinks of gold mining countries, New Zealand doesn't exactly leap to mind. But when Macraes<\/span> Mining acquired tenements from two companies in 1989, one being the then BHP<\/span> New Zealand, the move was a precursor for the subsequently renamed OceanaGold<\/span> ((OGC<\/span>)) to list on the ASX<\/span> in 2004 and put Kiwi gold mining on the map.<\/p>\n

\n\tDecades on, Oceana's<\/span> New Zealand gold assets are mature and now recovering gold at relatively a high cost. Indeed, at the highest cash cost within JP Morgan's gold stock coverage universe at around US$1000\/oz. However, the future of the miner is secure since it began development of the Didipio<\/span> project in the Philippines, JP Morgan asserts. Unlike Oceana's<\/span> legacy Kiwi assets, Didipio<\/span> offers long life at a low cost.<\/p>\n

\n\tDidipio<\/span> is set to drive JPM's<\/span> forecast 75% gold production growth measured over the period 2011-2014. The broker estimates some 400% earnings growth will be derived. Combing the Didipio<\/span> numbers, which the analysts have set at 50% of the Oceana's<\/span> net present value, with the company's legacy operations throws up a net cash cost of a much reduced figure of around US$450\/oz.<\/p>\n

\n\tFor Oceana<\/span>, Didpio<\/span> is a transformational project, JP Morgan believes. Yet the stock's current trading price represents a discount to the analysts' base-case net present value, which does not include consideration for expansion (10-15cps<\/span>), mine life extension (10cps<\/span>) or further exploration (?). This likely reflects, however, a discount for the sovereign risk of the Philippines.<\/p>\n

\n\tDespite boasting significant mineral riches, the Philippines rates very poorly in “places to do business” surveys, JP Morgan concedes. However, the analysts believe recent developments such as the ratification of the Mine Act of 1994, which allows 100% foreign ownership of resource projects, should pave the way for a more stable legislative mining code ahead. Such confidence was demonstrated by international major Goldfields<\/span> back in April when it acquired 40% of the Far South East project.<\/p>\n

\n\tJP Morgan has derived a sum-of-the-parts net present value for OGC<\/span> of $3.71 and has set a target of $3.70 – some 37% above the current trading price. The broker has initiated coverage with an Overweight rating.<\/p>\n

\n\tIn so doing, JPM<\/span> has joined three other FNArena<\/span> database brokers covering OceanaGold<\/span>, each of whom have a Buy or equivalent rating. The database consensus target price now stands at $3.67, with Citi<\/span> the most positive on $4.30.<\/p>\n

\n\tLast month Citi<\/span> posted its own report selecting OceanaGold<\/span> as the broker's top pick in the gold mining sector. Citi<\/span> similarly values the "step-change" in production levels and reduction in cash costs Didipio<\/span> offers. Aside from the primary target of gold, Didipio<\/span>, as is usually the case with gold deposits, offers copper reserves within the mix. Offsetting copper revenues will bring the effective "gold" cash cost into the negative for the first six years of operation. The company is pencilling<\/span> in a negative US$79\/oz net cash cost, but the broker notes this is based on a conservative average copper price of US$3.00\/lb. Using US$3.50\/lb (current spot US$3.65\/t), the broker derives a negative cost of US$270\/oz.<\/p>\n

\n\tCiti<\/span> is little concerned about Philippines country risk. Didipio<\/span> is the first project to proceed to production under new mining agreements established under the government's Executive Order 79 on mining reform. In setting a $4.30 target however, the broker has applied a greater discount than for non-Philippines peers with regard to the typical commissioning and ramp-up risk of any mining project.<\/p>\n

\n\tAlongside number one pick OceanaGold<\/span>, Citi's<\/span> second choice is Beadell<\/span> Resources ((BDL<\/span>)). Both offer their own specific risks which may lead investors to prefer the "safer" gold miner options of Newcrest<\/span> ((NCM<\/span>)) or Regis Resources ((RRL<\/span>)). However, Citi<\/span> considers both to be fully valued on their own estimates.
\n\t <\/p>\n

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JP Morgan has initiated coverage of OceanaGold, seeing potential for the company’s Philippines asset to prove transformational.<\/p>\n","protected":false},"author":8,"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\/61056"}],"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\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=61056"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/61056\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=61056"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=61056"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=61056"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}