OceanaGold’s (TSX: OGC; ASX: OGC) Didipio gold–copper mine in the Philippines entered production in April 2013 and is on track this year to produce between 85,000 and 95,000 oz. gold and 21,000 to 24,000 tonnes copper, at negative cash costs on a by-product basis of US$725 to US$650 per oz. gold
Gold production at the mine, which is located on Luzon island, 270 km north of Manila, should climb to 100,000 oz. a year starting in January 2015, as the company completes an expansion of its processing plant to 3.5 million tonnes per year. Copper production is expected to average 14,000 tonnes per year over the mine’s anticipated 16-year lifespan. (In the first half of 2014, Didipio produced 45,266 oz. gold and 11,185 tonnes copper.)
“Didipio is proving to be a transformative asset for the company with significant free cash-flow generation as a result of revenue from gold and copper, combined with it being a relatively low-cost operation,” the company’s Toronto-based manager of investor relations Sam Pazuki says.
The company is wrapping up an optimization study and assessing whether it can mine underground sooner than planned. The current mine plan calls for an underground component to begin being built in 2016, with production starting in 2019.
If the study recommends that underground development can start sooner, the work could get underway in 2015, with underground production kicking off in 2018, Pazuki confirms. The results of the optimization study are expected soon.
By bringing the dates forward a year, OceanaGold could access the higher-grade material that sits in the underground mine plan and start drilling from underground to boost resources that much sooner. So far the company has only drilled down to 400 metres below surface, and OceanaGold’s geologists say the orebody appears open at depth, and the high-grade material may continue deeper.
“We’ve been operating now about a year and a few months, and we have a pretty good understanding of the deposit, and we’re at the point where we can now ask ourselves ‘how can we maximize the asset?’” Pazuki says. “And we’ve been able to do that because we have strong technical experience. We’ve been operating in New Zealand for twenty-three years, so we have a strong technical team, and all of the expertise in-house.”
OceanaGold owns the largest gold-mining operation in New Zealand at the Macraes goldfield in Otago (the Macraes open-pit mine and the Frasers underground mine), as well as the Reefton open-pit mine on the northwest coast of New Zealand’s South Island.
At Didipio, meanwhile, operating improvements continue to be made. The company has designed a power transmission line to connect to the power grid and is waiting for permits, construction tenders and a power-purchase agreement. Pazuki says that building the power line should start in the fourth quarter of 2014 and be completed in the fourth quarter of 2015. Once on the grid and off diesel power, OceanaGold expects to save up to $14 million a year in operating costs, or the equivalent of US$100 per oz.
“Didipio is already one of the lowest-cost gold mines on the planet,” Pazuki says.
Other recent operational improvements include commissioning a water-treatment plant that has a capacity of 4,500 cubic metres and a throughput of 2,000 cubic metres per hour.
In terms of exploration upside in the Philippines, not only will drilling from underground at Didipio likely boost the mine’s reserves, the company believes, but OceanaGold also has an extensive land package, with 20 concessions in the country with interesting targets.
“The Philippines is one of the most prospective countries in the world, and we’ve got a significant land package,” Pazuki says, pointing out that the company has many gold–copper prospects in the country that have seen limited exploration in recent years.
One of the company’s most exciting concessions, he says, is Mayag, a gold–copper porphyry system on the northeastern tip of Mindanao. The company is awaiting its exploration permit to examine the concession in greater detail.
On the financial front, the company is chipping away at its debt while increasing its cash position.
“With the strong free cash-flow generation from Didipio we have been able to reduce our debt through repayment of about $95 million over the last 18 months, while increasing our cash position,” Pazuki says.
“We will continue to strengthen the balance sheet by repaying debt — about $30 million to $40 million this year — and adding cash.”
As of June 30, OceanaGold held US$46.2 million in cash and had an undrawn revolving credit facility of US$82 million.
Management believes it might be in a position to pay a sustainable dividend within a year.
Pazuki says that “we just keep our heads down and try to deliver positive results.”
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