Company Overview: OceanaGold Corporation is a gold mining company. The Company is engaged in the exploration, development and operation of gold and other mineral mining activities. The Company's segments are New Zealand, the Philippines, the United States and All other segments. The Company's assets encompass its flagship operation, the Didipio Gold-Copper Mine located on the island of Luzon in the Philippines. On the north island of New Zealand, the Company operates the high-grade Waihi Gold Mine. On the south island of New Zealand, the Company operates the gold mine in the country at the Macraes Goldfield, which is made up of a series of open pit mines and the Frasers underground mine. In the United States, the Company is constructing the Haile Gold Mine, an asset located in South Carolina along the Carolina Slate Belt.


OGC Details

OceanaGold Corp (ASX: OGC) is a mid-tier, high-margin, multinational gold producer with assets located in the Philippines, New Zealand and the United States, and it is also focusing on the Didipio Gold-Copper Mine located on the island of Luzon in the Philippines. On the North Island of New Zealand, the Company is the operator of high-grade Waihi Gold Mine while on the South Island of New Zealand, the company has operations  in the largest gold mine in the country at the Macraes Goldfield which is made up of a series of open pit mines and the Frasers underground mine. In the United States, the company is engaged in the operations in the Haile Gold Mine, a top-tier, long-life, high-margin asset located in South Carolina. OGC has a significant pipeline of organic growth and exploration opportunities in the Americas and Asia-Pacific regions. The group has showcased a healthy half year performance and now September Quarter (i.e., 3Q) production is guided to be similar to March Quarter while Haile and Didipio might be weaker but Waihi and Macraes are expected to compensate in terms of performance. The group has a low cost/ high margin portfolio of assets and aims to focus on delivering strong shareholder returns. OGC currently trades at A$4.05, and has support at $3.70 and resistance at $4.29. The group’s five-year trailing EPS growth (CAGR) has been around 29% and with some moderation (given a mix of performance from different assets and slightly lower earnings) the trend is not expected to derail as such. Price to book value for the full year is also expected to stay around 1.1 with EV/ EBITDA around 4.8. This with strategic moves indicate for an upside to current levels while the prevailing macroeconomic factors are slightly weighing on gold stocks at the moment.

Additional high-grade gold mineralisation along the East Graben vein at WKP: OGC has received additional high-grade gold mineralisation through the intersection along the East Graben vein at the company’s WKP prospect in New Zealand. East Graben Vein is one of the three major low sulphidation epithermal gold-silver veins that the company has identified so far within the WKP prospect area. In addition to these known veins, the company has intercepted multiple high-grade veins in the hanging wall and footwall of the East Graben Vein and needs further drilling. The drilling that was completed since the July 2018 exploration update has shown successful intersect high grade mineralization. The high-grade mineralisation is open in both directions, with 200 metres of vertical extent which is open for a further 100 - 200 metres up-dip. The company’s exploration activities will now specifically be focused on infill resource drilling within areas that have returned best width intercepts, including 5.0m @ 39.04 g/t gold and 3.6m @ 35.79 g/t gold. For the remainder of 2018, the company anticipates to complete 5,300 metres of infill resource definition diamond drilling and to further drill testing of the other major veins on the WKP prospect.

Brownfields drilling at Haile over the past nine months expected to add more low-cost ounces to the reserves: The Brownfields drilling at Haile gold mine in South Carolina, U.S.A. over the past nine months is expected to add more low-cost ounces to the company’s reserves. Since the acquisition of the Haile Gold Mine in late 2015, there is a 70% increase in reserves and, through the exploration program, the company will know more about the mineralization. This will result in improving the mine planning and design and will lead to the improvement in the productivities and reduction of costs. Overall, these results also demonstrate the potential for additional mineralisation close to surface between current pit designs and at depth. The comprehensive geological reassessment from mapping and core logging will play a critical role in ongoing and future target generation. Haile’s exploration team is also driving innovative modelling for emerging geophysical targets that are planned to be pursued in 2019. Moreover, the drilling conducted below the northwest wall of the Mill Zone Phase 1 pit has returned positive results and a Phase 2 layback design is in progress (e.g. DDH0736: 32.3m @ 10.14 g/t from 59.6m). Infill and delineation drilling shows robust mineralisation, specifically in the upper Ledbetter area (e.g. DDH0678: 77.7m @ 4.04 g/t from 173.2m and DDH0771: 75.9m @ 1.57 g/t from 203.1m). The shallow, medium-grade drill intercepts are confirmed in diamond holes at Red Hill. Therefore, Red Hill is scheduled for mining in 2019 (e.g. DDH0805: 21.3m @ 4.51 g/t from 54.0m). An 18-hole diamond drill program was conducted outside the reserve pit design at the Snake West extension and has given positive results (e.g. DDH0755: 64.8m @ 0.97 g/t from 198m). OGC has planned further drilling in the second half of 2018 at Ledbetter, Mill Zone and Snake. The assays received from delineation drilling had shown high-grade, continuous mineralisation at the Horseshoe underground deposit (e.g. DDH0609: 233.5m @ 2.87 g/t from 168.6m). Additionally, Haile expansion is underway and as per the enhanced Haile design, the average gold production (LOM) is expected to increase 40% to 180,000 ounces, while gold reserves will increase by 70% to 3.46Moz.


Haile Expansion (Source: Company Reports)

Significant increase in Mineral Resource estimate for the Martha Project: The company has posted significant increase in the Mineral Resource estimate for the Martha Project at the Company’s Waihi gold mine in New Zealand. From this project, the company has increased the total Indicated Resource by 700% to 0.76Mt @ 5.8 g/t Au for 140,000 ounces of gold. The company has also increased total Inferred Resource by 250% to 2.49Mt @ 4.3 g/t Au for 339,000 ounces of gold. Due to better than expected results, the company has significantly expanded the Martha Project exploration target. Moreover, the company has identified mineralised veins that sit outside the initial exploration target. After the incorporation of further data, including that from recent drilling, the exploration target is now revised and is now outlined to have a potential volume of between 5 million and 8 million tonnes at a grade of between 4.0 g/t and 6.0 g/t gold for approximately 1,000,000 to 1,500,000 ounces of gold. Further, the company will increase the number of diamond drills from the current four up to six to boost the testing of the Martha, Empire, Royal and Edward veins and the numerous linking splays that make up the Martha vein system and revised exploration target.


Performance over the years (Source: Company Reports and Thomson Reuters)

Strong First Half 2018 Performance: OGC for the first half 2018 has reported 45% increase in the net profit after tax to $89.1 million and 21% growth in the revenue to $402.4 million. The revenue grew due to a higher average gold price received and increased sales volumes driven by stronger production from Haile and Macraes. The company’s cash balance expanded by 45% quarter-on-quarter to $128.9 million with the liquidity of $148.9 million as at 30 June 2018. During the past 12 months, the company has increased the cash balance by approximately 60% and has reduced the net debt by almost half. OGC delivered one of the highest EBITDA margins in the sector with EBITDA margins of 52.3% in the first half and 53.3% in the second quarter. Further, in the first half 2018, OGC produced 268,597 ounces of gold and 7,808 tonnes of copper, on the back of stronger production at Macraes and Haile offsetting lower production from Didipio and Waihi. During the second quarter of 2018, the company produced 142,950 ounces of gold and 3,919 tonnes of copper, which is up 15% compared to the same period in 2017 due to higher production from Haile and Macraes more than offsetting lower production at Didipio and Waihi. Meanwhile, OGC during the second quarter, had amended its Revolving Credit Facility, by extending the tenure by one year to 2020 and had also revised several financial covenants and reduced the facility margins. The company’s total credit facilities stood at $220 million, out of which $200 million is already drawn.


FY 18 Financial Performance (Source: Company Reports)

Increased 2018 consolidated gold production guidance: OGC has increased its 2018 consolidated gold production guidance driven by its strong operating performance and improvements to the mine plan at the Didipio Operation. Therefore, the company’s 2018 gold production guidance range has been revised upward, and now it expects the same to be in the range of 500,000 to 540,000 ounces of gold and 15,000 to 16,000 tonnes of copper with All-In Sustaining Costs that range from $725 to $775 per ounce sold. Moreover, OGG has continued to progress the permitting for a targeted 10-year mine life extension at Waihi in New Zealand. At Haile, the company is on track to start permitting of the Horseshoe underground and expanded open pit early in the third quarter. The company continues to advance well expansion of the Haile process plant and the installation and commissioning of the pebble crusher is well on track. At Didipio, OGC continues to ramp-up the underground operations and development of panel 2 as per the plan. The group will release its third quarter financial and operational result on October 25, 2018 and the same is expected to be a decent one.


Increased 2018 Guidance (Source: Company Reports)

Stock Recommendation: Meanwhile, OGC stock has risen 7.6% in three months as on October 09, 2018 but dropped by about 3.3% in past five days, and is trading at a low P/E of 9.85x. During the past 12 months, the company has increased its cash balance by approximately 60% and has reduced the net debt by approximately 50%. As at the end of the first half of 2018, the Company’s net debt position stood at $103.9 million, which is approximately 50% less than the same period in 2017. OGC also delivered one of the highest EBITDA margins in the sector. Further, the company is achieving solid exploration results to underpin a significant expansion of the Waihi resource while it is designed to support the 10-year mine life extension. The company has already reported significant high-grade intercepts at its regional WKP prospect. Haile expansion is underway and is projected to add significant more reserves of gold. Operating performance at Haile has been strong. Didipio continues to outperform and the ramp-up of the underground is progressing nicely. In New Zealand, Waihi is back on track and Macraes is exceeding the expectations with improved plant performance. Based on the foregoing, we give a “Buy” recommendation on the stock at the current price of $ 4.050, down 1.7% on October 10, 2018.
 

OGC Daily Chart (Source: Thomson Reuters)

 
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