OceanaGold says no plans to end hedges
Tue Mar 10, 2009 2:36am EDT
By James Regan
SYDNEY (Reuters) - OceanaGold Ltd (OGC.AX: Quote, Profile, Research, Stock Buzz)(OGC.TO: Quote, Profile, Research, Stock Buzz), Australia's fourth-largest listed gold miner, has no plans to close out its out-of-the-money gold hedges before they come due this year and in 2010, despite rising gold prices, its chief executive said on Tuesday.
The company also is reassessing the cost of restarting construction work on its Didipio gold and copper mine in the Philippines, which was suspended last year due to rising cost estimates, Stephen Orr told the Reuters Global Mining and Steel Summit from Melbourne.
The mine is tipped to yield about 120,000 ounces of gold and 15,000-20,000 tonnes of copper a year once in production, making it one of the largest mines of its kind in the Philippines.
Like fellow Australia-listed Lihir Gold (LGL.AX: Quote, Profile, Research, Stock Buzz) and Newcrest Mining (NCM.AX: Quote, Profile, Research, Stock Buzz), OceanaGold considered buying out its gold hedges early on several occasions to gain exposure to rising bullion prices. But each time it opted to fund production growth from its mines in New Zealand instead, Orr said.
"Our strategy was to restructure the hedge book so it only comprised a minority percentage of our production ounces and then add additional ounces," Orr said.
The company must sell 106,000 ounces of gold this year and 99,000 ounces in 2010 for NZ$733 an ounce and a further 104,000 ounces for a maximum NZ$1,068 in 2010 to satisfy its hedges.
In New Zealand dollars, gold currently costs about NZ$1,837 an ounce.
Gold hedges are designed to protect miners when bullion prices are going down but can backfire in a rising market.
To close out its hedges, OceanaGold would effectively have to buy gold at prevailing prices and deliver the gold into lower- return hedge sales contracts.
About two-thirds of 2009's forecast output of 280,000-300,000 ounces is still exposed to market prices, Orr said.
"Even with the hedging we're enjoying higher revenues and higher margins than we ever have in the history of the company. By growing production we've diluted the effect of the hedges."
A weakening New Zealand dollar, currently worth less than US$0.50, and the growing impact of the global financial crisis were driving up margins on the unhedged portion of OceanaGold's yield, Orr said.
"We are in a recessionary environment and that's always good for the gold price," he said. "I fully expect to see a price in the range of $1,000 or more for the foreseeable future.
Oceanagold suspended its project in Philippines in mid-2008 after spending $70 million and estimating it would cost a further $250 million to complete.
"That was just about the time the resource market collapsed and it became impossible to raise capital," Orr said.
Since then, inflationary cost pressures have largely abated, cutting labor and other expenses dramatically, he said.
"We are now reassessing that and its our belief we can reactivate the project and complete it for significantly less capital that we had indicated in May 2008," he said.
The reassessment should be completed this year, he said. |
