OceanaGold‘s (TSX: OGC) Waihi District preliminary economic assessment (PEA) envisions an additional 2.2 million oz. of gold output from the Waihi district between 2021 and 2036.
The additional ounces would be sourced from the Martha and Gladstone open pits, as well as from the underground portions of the Martha and Wharekirauponga (WKP) deposits.
Based on a growth capital estimate of US$447 million over eight years for the producing site and life-of-mine all-in sustaining costs (AISCs) at US$627 per oz., the after-tax net present value for the additional development is US$665 million, at a 5% discount rate.
“Using our base-case assumptions, the significant exploration potential recognized at Martha Underground and WKP, combined with the existing infrastructure and skilled workforce, the results of the study give us confidence to move forward in the Waihi District opportunities and as a result, we will continue advancing each forward,” Michael Holmes, the company’s president and CEO, said in a news release. “Leveraging exploration potential through aggressive drill campaigns has been the key to our success since acquiring the Waihi asset in late 2015.”
Holmes added that the company sees potential for additional resource growth across the existing deposits, with a 25,000-metre drill program underway at Martha underground and an additional 5,000 metres of drilling ongoing at WKP. OceanaGold now plans to start the permitting process for the proposed surface mines and an additional tailings facility.
The latest study assumes an expansion of the existing Waihi plant to 1.6 million tonnes per year for annual gold production between 35,000 oz. to 45,000 oz. in 2021 and increasing to approximately 300,000 oz. by 2028.
Along with the PEA, OceanaGold released an updated resource for the Martha open pit. Total indicated resources at Waihi stand at 12.2 million tonnes grading 4 grams gold per tonne for 1.6 million gold oz. with a further 11 million inferred tonnes at 4.4 grams gold, containing an additional 1.6 million oz. of gold.
OceanaGold expects to deliver a feasibility study for Martha underground in the first quarter of next year, which would be followed by a prefeasibility study for WKP in the second half of the year.
The Waihi district is on the North Island of New Zealand, 140 km southeast of Auckland. The Waihi site hosts a producing underground mine, which is expected to generate 18,000 oz. to 20,000 oz. gold this year at AISCs of US$715-US$765 per ounce.
OceanaGold’s producing operations are in New Zealand and the United States. This year’s total production guidance for the company stands at 360,000-380,000 oz. at AISCs of US$1,075-US$1,125 per ounce.
Farooq Hamed, a mining analyst at Raymond James who covers OceanaGold, has a strong buy rating and a price target of $4.50 per share.
“Overall, the updated PEA is accretive to our Waihi net asset value (Waihi NAV grows to $602 million from $567 million) and we believe there is further upside with updated results from the company’s exploration programs at Marth UG and WKP.”
Brian Quast of BMO Capital Markets has a target price of $3.75 per share. “While our new NPV for the Waihi district moves up to $490 million (from $119 million), this additional value does not drive our target price higher. … Production growth in H2/20 following a Covid-19 impacted Q2/20, combined with positive exploration results, and advanced studies and/or permitting at Waihi should start to re-rate the stock higher over the next 12-18 months.”
At press time in Toronto the company’s shares were trading at $3.31 within a 52-week trading range of $1.16 and $4.18.
— A version of this article first appeared in the Canadian Mining Journal. The Northern Miner and the Canadian Mining Journal are part of the Glacier Resource Innovation Group.