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 Corporation (ASX: OGC) is a mid-tier, high-margin, multinational gold producer with a decent organic growth pipeline. The group’s assets are spread across various locations such as Philippines, New Zealand and the United States. On the North Island of New Zealand, the Company operates the high-grade Waihi Gold Mine while on the South Island of New Zealand, the Company operates 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. Its organic growth project entailing Haile mill expansion will help move from 2.4-2.6Mtpa run-rate to 3.2Mtpa with an expectation to touch 4.0Mtpa over time. This is also expected to help cash flows advance over 60% post commissioning. Waihi’s significant mine life extension is also expected to drive performance. The Group has operated sustainably over the past one decade and has a proven track-record for environmental management and community and social engagement. The Group managed to generate strong operating cashflow despite the modest working capital movements and it has no debt repayment until Q42018. The Net Margins increased significantly from 15 per cent in September 2017 to 36 per cent in December 2017. The Company has also now purchased $4.3 million of equity in Gold Standard Ventures to maintain its equity ownership position of 15.6 per cent.


Gold Production Growth (Source: Company Reports)

Performance Right Plan - The Company announced that in order to continue to align the Company with leading governance practices, it suggested a Performance Rights Plan so that the maximum number of securities that are to be issued or reserved for issuance under its Performance Rights Plan reduce from 5 per cent of the issued and outstanding Common Shares of the Company to 3.3 per cent. The Performance Rights Plan is the only active equity compensation plan for employees of the Company. In a recent media release, an aggregate of 617,464,893 Common Shares of the Company were issued and outstanding and a total of 649,503 options remained outstanding under the Option Plan, 7,795,095 performance rights remained outstanding under the Performance Rights Plan, NIL options remained outstanding under the Pacific Rim Incentive Stock Option Plan, and 1,016,098 options remained outstanding under the Romarco Replacement Stock Option Plan. All this represented approximately 1.58 per cent of the issued and outstanding Common Shares on a non-diluted basis. Now after this, 3.3 per cent of the maximum limit 20,376,341 Common Shares of the Company would be available for issuance under all of the Company’s current incentive plans and a total of 10,915,646 performance rights would remain available for grant under the Performance Rights Plan.


Guidance for Projects with Mining Life (Source: Company Reports)

An update on Mining Projects - OGC commenced its expansion activities at Martha Project, a potential 10-year LOM extension and explored extensive drilling beneath Martha Pit and at Favona. At Haile Expansion, it highlighted for increased mine life, a 60 per cent of increase in net cash flows and increase in annual average production to 189,000 ounces. It is expected that Q1 2019 will mark the commencement of regrind circuit upgrade and the group is expecting to produce 80,000 - 90,000 ounces. At Didipio, expansion activities continued, and construction of Panel 2 proceeded and has a budget to explore till the dept of 22,400m in 2018. At Macraes, the mine life can be extended to 10 years and positive drill results at Golden Point are expected to increase the resource and will help identify the areas of higher grade.


Cost Curve for different Projects (Source: Company Reports)

It is expecting to produce 190,000 - 200,000 ounces in 2018. Extensive drill programs at Haile and Waihi in particular, are focused on multiple targets within the existing operating footprint and across greenfield opportunities. During the March Quarter of 2018, the Company’s joint venture partner Mirasol Resources completed the first stage of drilling at the La Curva Project in Argentina and confirmed the presence of a large gold and silver system within the Castora Trend. It is expected that an additional 3,000 metres of drilling will commence in the second quarter of 2018.


Capital Investment in Q12018 in Projects (Source: Company Reports)

Kickstart to FY18 - The group continued to deliver EBITDA margins at or near the top of the gold mining industry while delivering another strong return on invested capital for the quarter (Q1FY18). At Waihi, it achieved a major milestone by starting the permitting process for a 10-year mine life extension through the Martha Project. On a consolidated basis, the Company produced 125,646 ounces of gold and 3,889 tonnes of copper, down from the previous quarter, which was expected and previously forecasted. Consolidated All-In Sustaining Costs for the first quarter were $799 per ounce and cash costs were $483 per ounce on sales of 127,473 ounces of gold and 3,192 tonnes of copper. It is expected that unit costs will decrease as the year will progress. At the end of the first quarter of 2018, the Company recorded revenue of $196.7 million, which was lower than the previous quarter due to decreased gold sales and was partially offset by higher average gold realized prices.



EBITDA Margin and ROIC Trend (Source: Company Reports)

During the first quarter, the Company’s total credit facilities stood at $230 million of which $200 million was drawn. The Company’s net debt decreased by 12 per cent to $146.4 million. The cash balance at the end of Q1FY18 increased from the previous quarter and amounted to $89.1 million excluding $71.4 million in marketable securities and was driven by lower capital expenditure while each operation continued to generate strong cash flows with an average AISC margin of $541 per ounce sold. It recorded strong EBITDA margin of 51 per cent which reflected the high margin structure of the business.

FY18 Guidance (Source: Company Reports)

Outlook - The Group expects to produce 480,000 to 530,000 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 in FY18. It improves fatality risk management and controls through Principal Hazard Auditing and High Potential Incident investigations. OGC is consistent with its strategy of operating its existing assets efficiently. It keeps seeking for geographic and product diversification and looks forward to advancing organic growth opportunities. It is expecting a strong cash flow yield in 2018 with a budgeted gearing ratio below 5 per cent at end of 2018. It is on track to achieve guidance and is expecting Q42018 to be the strongest quarter for the production. 


Comparative Cash Flow Yield (Source: Company Reports)

Stock Performance - The Company has a strong social license which enables it to operate and work collaboratively with its valued stakeholders to identify and invest in social programs that are designed to build capacity and not dependency. The Group also has a significant pipeline of organic growth and exploration opportunities in the Americas and Asia-Pacific regions. It was recognised as a professional miner and was awarded for the excellence in Safety in 2017 and for its best Practices and Sustainable Mineral Development. It believes in deriving innovation through technology which is a part of its consistent strategy. ROE improved from 1.6 per cent in September 2017 to 6.1 per cent in December 2017 which was more than industry median of 4 per cent and ROIC improved from 1.2 per cent in September 2017 to 5 per cent in December 2017.

Moreover, it is expecting to generate shareholder value with robust Return on Equity of 8 per cent for 2018 and ROIC of 11 per cent by diligently investing in capital. It leverages its significant pipeline of organic opportunities to create long-term shareholder value. It was worth noting that the Company repaid $84 million of debt and reduced the level to $167 million after paying the dividend of $12.3 million in FY17 and declared additional $6 million of dividend in Q1FY2018. In 2018, gold production so far has been generally in-line with the expectations, despite severe cold weather event that impacted the Haile operation early in the year. At the end of the first quarter of 2018, the Company had immediate available liquidity of $119.3 million. The stock price has been declining for one year and was down by 29.18 per cent with a slip of 7.82 per cent noted in last one month. We give a “Buy” recommendation at the current market price of $3.29, by looking at the initiatives it is taking towards its consistent strategy to deliver organic growth and trading level indicating a significant discount to many peers.
 

OGC Daily Chart (Source: Thomson Reuters)

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