Da Shi Research • Wed, Dec. 10
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- Oceanagold issued production and cost guidance for 2015 for the first time yesterday.
- The company expects a healthy increase in consolidated production in 2015 over 2014 levels and costs to remain more or less in line.
- On an asset specific level, there continues to be divergence in the fortunes of Didipio vs the NZ assets - with the NZ assets struggling on an unhedged basis.
- Coupled with the company's existing hedging program, however, the higher forecast consolidated production now provides and even higher cashflow yield at the current share price.
- Oceanagold expects to produce at least 300,000 oz. of gold next year at just $800/oz.
- This is in line with my expectations.
- While some of these ounces are at Oceanagold's end-of-life New Zealand mines, the company should generate substantial cash flow relative to its valuation.
- Oceanagold's share price has been hammered this last week, more so than many of its peers.
- Oceanagold's recently-completed hedging arrangement provides almost complete gold price downside protection for the forecast production from its high cost NZ assets until January 2017.
- The recent fall in Oceanagold's share price looks overdone vis-a-vis the protection the hedging program provides for gold prices below NZ$1560/oz (US$1212/oz).
- Even if gold were to fall to US$1000/oz, OGC's free cash flow generation would give investors today a cash flow yield per share of 8.9% for 2015 and 5.2% for 2016.
- The current pullback in OGC's share price represents an ideal entry point into what is an extremely high cash generative stock.
Oceanagold's New Hedging Program Significantly De Risks Its New Zealand Assets
- Like all gold companies, Oceanagold has been savaged by the recent fall in the gold price, with its shareprice falling 20% over the last month.
- Oceanagold announced an extension of its hedging program, which now covers over 80% of its expected production from its high cost New Zealand assets over the next 2 years.
- By leaving its most attractive asset (Didipio) unhedged, OCG still provides meaningful gold price upside participation.
- The market is underestimating the protection OGC now has to falling gold prices through its new hedging program.
- OGC is an ideal stock for investors looking for downside some gold price protection but with meaningful upside participation.
Oceanagold: Improvements At Didipio And Reefton Make This Stock Compelling Once Again
- Oceanagold has been a victim of the downturn in the gold price, and shares have fallen by over 30% since I last suggested that investors take profits in May.
- While shares are down management has made considerable improvements to the Didipio Mine Plan going forward.
- The company has also extended the life of the Reefton Project in New Zealand.
- While the bottom may not be in yet Oceanagold offers good value and it should be able to maintain its profitability throughout the downturn, making it a compelling "buy."
Update: Oceanagold Releases Q3 Earnings, Updated Didipio Mine Plan
- Oceanagold reported strong Q3 earnings showing low cost production.
- The company also released a more attractive mine plan for its Didipio Project.
- These announcements exceed my expectations.
- With this good news and recent weakness in the stock price, shares are beginning to look attractive again.
Update: Oceanagold Releases A 10-Year Mine Life PEA For Its Reefton Project In New ZealandBen Kramer-Miller • Mon, Oct. 27
- Oceanagold just released a PEA for its Reefton Project in New Zealand.
- I had not anticipated this as the project had an expected mine life of only a couple more years.
- This is a bullish development, and with recent share price weakness, the stock is starting to look interesting again.
Oceanagold's Valuation Is Unsustainably Low - Get Ready For A Re-Rating Upon Release Of Its September Results
- Over the first half of 2014, Oceanagold was one of the best performing gold miners but since its June quarterly results release, it has fallen 37% to be the worst.
- The June quarter was a transition quarter for Oceanagold - with its Didipio mine moving to Stage 3 and quarterly production temporarily halving as a result.
- The market has failed to understand the transient nature of the June quarterly results and is now significantly undervaluing Oceanagold.
- Oceanagold will re-rate significantly over the coming weeks with the release of its September results and the release of its final Didipio optimisation study.
- OceanaGold just announced highlights of its plan to optimize its operations at its flagship Didipio Mine in the Philippines.
- The results look solid as they will bring forward some production and improve efficiency, although many specifics weren't included.
- I had not anticipated this in my May article.
- This is a bullish development as it brings cash flow forward while making the operation more efficient -- capex remains an unknown.
- With the gold price weakening and the stock price at the level I said to get out in May, I continue to avoid the stock.
Update: Oceanagold Earnings - Higher Costs And Lower Production
- OceanaGold announced a small Q2 loss on higher costs and lower production.
- As I predicted the company's production would fall off after an unusually strong Q1 that sent shares higher; production costs exceeded expectations by 11%.
- The stock is risky at the current valuation and investors should be cautious.
- OceanaGold shares have soared nearly 50% since I recommended them in July, and even more since the beginning of the year.
- This is due to an especially strong performance at its Didipio Mine in the Philippines during the first quarter.
- But mining in the Philippines is risky, and the Q1 numbers were above and beyond the company's estimates.
- If we factor these points into an NPV calculation for Didipio it becomes evident that the stock is overvalued.
- The company is executing well, and it should have strong cash-flow going forward, so it is still on my radar, and it is a worthwhile investment on weakness.
Wed, Aug. 13, 12:28 PM
- Austerity moves clearly have helped gold miners navigate through the lower price environment, but Citigroup analysts warn that further belt-tightening will be difficult, and may even hurt long-term prospects.
- Citi cautions that the slowdown in capex invariably will result in a fall in production, which in turn will lead to a faster rise in unit costs; also, the recent increase in head grades across the global mining space is an unsustainable mining practice that can have further detrimental effects on future mine plans and ore bodies.
- Among miners Citi sees as most vulnerable to a low gold price environment are Sibanye Gold (NYSE:SBGL), Harmony Gold (NYSE:HMY) and DRDGOLD (NYSE:DRD), which the least vulnerable are Goldcorp (NYSE:GG), Barrick Gold (NYSE:ABX), Yamana (NYSE:AUY), Medusa Mining (OTC:MDSMF) and OceanaGold (OTCPK:OCANF).
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