Company Overview: OceanaGold Corporation (ASX: OGC) is a multinational gold mining company with a significant pipeline of organic growth and exploration opportunities and portfolio of established operating assets. The company’s operating assets include the Didipio Gold-Copper Mine in the Philippines; the Waihi Gold Mine and the Macraes Goldfield Mine in New Zealand; and Haile Gold Mine in the US. Along with mining operations, the company also has a pipeline of strategic investments that include active option and joint venture agreements in Australia, America, New Zealand, and Argentina. 

OGC Details

Pipeline of Organic Growth Opportunities: OceanaGold Corporation (ASX: OGC) is a global mid-tier gold producer with assets located in the Philippines, New Zealand, and the United States. The company has 30 years of global operational and projects experience. As of 3^rd November 2020, the company’s market capitalisation stood at ~$1.30 billion. OGC is focused on maintaining its consistent track record of profitability from its business. The company intends to drive operational efficiencies at each of its operations and create additional value for its shareholders through prudent capital investments on organic growth opportunities and targeted exploration. From 2015 to 2019, the company’s revenue grew at a CAGR of 6.41%.

Five-Year Revenue Trend (Source: Refinitiv, Thomson Reuters)

Looking ahead, the company is focused on maintaining increased mining and milling rates while continuing to improve recoveries. With its recently completed bought deal offering, OGC seems well funded to advance its significant organic growth projects that are expected to create value for shareholders over the long term. For Q4FY20, the company expects higher production at both Macraes and Haile, and for full year, it expects to achieve the low-end of FY20 production guidance of 295,000 to 345,000 consolidated ounces at AISC of US$1,150 to US$1,250 per ounce sold.

H1FY20 Results Highlights:  As a result of the COVID-19 restrictions imposed in the Q2 FY20 and lower sales volume, the company’s H1FY20 results were severely impacted. As a result, the company reported reduced EBITDA of US$55 million for H1FY20, compared to US$135 million in H1FY19, mainly due to lower revenue, partially offset by lower operating costs.  For the half-year period, the company reported total gold production of 139.4koz and total gold sales of 153.3koz. The company’s net loss after tax stood at US$57.4 million in H1FY20, compared to a net profit of US$27.7 million in pcp, mainly due to lower revenue, higher non-production costs of US$16.3 million, higher depreciation and amortisation, and a higher unrealised loss on the fair value of undesignated gold hedges. 

H1FY20 Results (Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together forms around 1.70% of the total shareholding. American Century Investment Management, Inc. and Quaero Capital LLP hold maximum interest in the company at 0.58% and 0.25%, respectively.

Top 10 Shareholders (Source: Refinitiv, Thomson Reuters)

Key Metrics: For the September 2020 quarter, the company’s gross margin stood at 37.8%, higher than the industry median of 9.6%. For the quarter, the company’s debt to equity multiple stood at 0.22x, lower than the industry median of 0.30x. The company’s current ratio stood at 0.80x in September 2020 quarter.

Key Metrics (Source: Refinitiv, Thomson Reuters)

September Quarter Highlights: For the September 2020 quarter, the company reported total gold production of 63.1koz, higher than the production of 58.7koz reported in the previous quarter. The production over the quarter was lower than the expectations as it was impacted due to delayed access to higher grade zones at Haile, partially offset by stronger production from Macraes. From Haile operations, the company reported total gold production of 28.3koz for the quarter, at site AISC of US$1,781 per oz sold. From Macraes operations, the company reported total gold production of 34.8koz at site AISC of US$1,482 per oz sold, reflecting resumption of normal operations post COVID-19 restrictions in Q2. Over the quarter, the company achieved record recoveries from Macraes operations.

Further, the company reported total gold sales of 60.8koz for the September quarter, taking the total YTD sales to 214.1koz. For the quarter, the company reported total revenue of US$97.9 million and adjusted EBITDA of US$23.9 million.  As of 30 September 2020, the company had total cash of US$127 million and net debt of US$187 million.

Q3FY20 Results (Source: Company Reports)

Completes C$150 Million Bought Deal Financing: On 20^th October 2020, the company announced that it has completed a bought deal equity financing, under which, it has issued 73 million common shares at a price of C$2.06 per offered share, raising a total gross proceeds of around C$150.380 million. The offered shares have been listed on the Toronto Stock Exchange (TSE). On 23^rd October 2020, the company announced that the underwriters of its bought deal equity financing have partially exercised and concluded the over-allotment option. They have purchased a further 8,550,000 common shares at a price of C$2.06 per common share, raising gross proceeds of C$17.61 million.

OGC intends to use the combined net proceeds to fund organic growth projects including the Haile underground development, ongoing exploration, and development of the Company's mineral properties in New Zealand. The proceeds will also be used for working capital and for general corporate purposes.

Key Risks: OGC is exposed to the risks and uncertainties caused by the COVID-19 pandemic. The company is also exposed to the fluctuations in the prices of gold. In addition, the company is exposed to the risk related to the fluctuations in the foreign currency exchange rate.

Outlook:  The company continues to pursue and review internal and external growth opportunities that would further enhance shareholders’ wealth. In Q4FY20, OGC expects higher production at both Macraes and Haile operations. For the full year, OGC expects to achieve the low-end of its FY20 production guidance of 295,000 to 345,000 consolidated ounces at AISC of US$1,150 to US$1,250 per ounce sold.

From the Haile operations, the company expects its FY20 gold production to be in the range of 135,000 – 175,000 ounces with site AISC to be in between US$1,100 – US$1,400 per oz sold. At Haile, the company has planned an extensive exploration program at underground targets: Horseshoe Deeps, Snakeshoe, Palomino, Aquarius & Pisces. OGC expects to commence Haile Underground development in 2021, with first production targeted for late 2022.

At Waihi, OGC is continuing with the Martha underground development, with first production expected in Q2 2021. The Waihi operations are expected to produce around 7 – 8 koz of gold in Q4 FY20.  At Macreas, the company excepts to begin the Golden Point Under Ground development in Q4 2020, with first production targeted for late 2021.

Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)             

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Approach (Source: Refinitiv, Thomson Reuters)             

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of OGC has corrected by 50.65% in the past three months and is inclined towards its 52-weeks low price of A$1.455, offering a decent opportunity for accumulation. On a technical analysis front, the stock has a support level of ~A$1.713 and a resistance level of ~A$2.33. We have valued the stock using Price to Cash Flow multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). Considering the company’s decent production performance, its organic growth opportunities, strong fundamentals, modest outlook and current trading level, we give a “Buy” recommendation on the stock at the current market price of A$1.880, up by 1.621% on 3^rd November 2020.

OGC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)      

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