OceanaGold: Haile And Didipio In Focus For Q4 2021

Summary

• The third-quarter revenue was $204.6 million with adjusted EBITDA of $97.3 million and adjusted net profit of $53.0 million or $0.07 per share.
• The total immediately available liquidity is $143.2 million, including $113.2 million in cash and $30.0 million in available undrawn credit facilities as of September 30, 2021.
• I recommend buying OCANF at or below $1.81.
• Looking for a helping hand in the market? Members of The Gold And Oil Corner get exclusive ideas and guidance to navigate any climate. Learn More »

claffra/iStock via Getty Images

Introduction

The Melbourne Australian-based OceanaGold Corp. (OTCPK:OCANF) reported its third-quarter 2021 earnings results on October 29, 2021.

1 - Q3 Snapshot

OceanaGold posted a solid third quarter with gold production of 79.2K Au Oz and revenue of $204.6 million. The net income was $44.9 million compared to a loss of $96.8 million in 3Q20. The company sold 97.445K Oz, up 1.6% sequentially.

Source: Presentation

Interim CEO Scott Sullivan said in the conference call:

Looking back at the third quarter, I'm pleased with the financial performance of the business and it does reflect the importance of having a diversified portfolio of assets. We delivered our fourth consecutive quarter of improved profitability primarily related to the renewal of the FTAA paving the way for gold copper concentrate sales from the Didipio and continued strong performance at Haile.

Processing and production at Didipio start in 4Q21, with the sale of concentrate commencing in 3Q21. Quarterly production is estimated at roughly 30K Au Oz and 3K Tonne of Copper. Entire operations are expected to be performed within 12 months. Processing is expected to have begun last month.

Source: Presentation

Investment Thesis

The investment strategy I suggest here is to trade the short-term stock LIFO and keep only a reduced long-term position with a year or two horizon.

I believe that OCANF will profit from the restart of the Didipio Mines. Still, the persistent gold price weakness erodes any chance for a quick reversal, and I recommend accumulating the stock below $1.81.

Stock performance

OceanaGold has outperformed the VanEck Gold Miners ETF (GDX) on a one-year basis. However, the stock is now up 44% year over year.

Data by YCharts

OceanaGold - Financial Snapshot 3Q21 - The Raw Numbers

OceanaGold	3Q20	4Q20	1Q21	2Q21	3Q21
Total Revenues in $ Million	97.9	168.2	148.9	182.6	204.6
Net Income in $ Million	-96.8	3.9	16.0	31.4	44.9
EBITDA from company $ Million	-55.3	76.7	60.7	90.0	89.2
EPS diluted in $/share	-0.16	0.01	0.02	0.04	0.06
Operating Cash flow in $ Million	63.1	-1.6	47.6	35.8	69.0
Capital Expenditure in $ Million	78.5	62.7	72.8	86.1	85.0
Free Cash Flow in $ Million	-15.4	-64.3	-25.2	-50.3	-16.0
Total Cash $ Million	127.0	179.0	145.5	92.3	113.2
Long-term Debt In $ Million	207.4	205.2	205.6	207.2	257.0
Shares outstanding (diluted) in Million	637.2	702.0	713.5	719.6	718.2
Producing assets	3Q20	4Q20	1Q21	2Q21	3Q21
Gold production in K Au Oz	63.1	99.2	83.2	93.8	79.12
Gold production sold	60.8	96.4	82.8	95.9	97.45
Gold price realized	1,601	1,726	1,786	1,893	1,797
AISC $/oz	1,695	1,080	1,229	1,226	1,200
Mines	3Q20	4Q20	1Q21	2Q21	3Q21
Haile	28.3	49.0	44.3	57.2	45.9
Macraes	34.8	42.6	34.5	32.7	25.7
Waihi	0	7.6	4.3	3.9	7.5
Didipio	0	0	0	0	0

Click to enlarge

Data Source: Company release

Gold Production And Balance Sheet Details

1 - Revenues were $204.6 million in 3Q21

OceanaGold reported third-quarter revenue of $204.6 million with a net income of $44.9 million. The company posted a net profit of $31.4 million in the second quarter or $0.04 per share. This quarter's revenue was higher due to higher gold sales volumes, mainly from Haile, and a higher average gold price received.

2 - Free cash flow was a loss estimated at $16.0 million in 3Q21

Yearly trailing free cash flow is a loss of $156.6 million, with a loss estimated at $50.3 million for the second quarter of 2021. The free cash flow shows that the company's CapEx is still too high but will be reduced soon with the start of the Didipio mine.

3 - Gold production details. Total production was 79.117K Au Oz in 3Q21 (not including Didipio). (Sold 97.445k Au Oz).

The consolidated third-quarter gold production was 79,117 ounces (not including Didipio) at an AISC of $1,200 per ounce on 97,445 ounces of gold sales.

Note: In 3Q21, the Didipio operation recorded gold sales of 19,151 ounces and copper sales of 3,356 tonnes. In 3Q21, 1,096 ounces of gold in doré were sold, with remaining sales related to the gold-copper concentrate. Early in the fourth quarter, the company completed the transport of the concentrate on-hand. The company has received about $38 million from the sale of the concentrate.

Production increased significantly at Haile YoY.

Note: The Didipio Mine in the Philippines did not produce from H2 2019 until 30 September 2021 due to the suspension of operations. The first concentrate in Didipio is expected in 4Q21. In the conference call:

Processing is expected to commence – recommence in the fourth quarter, which is with initial fee from the 19 million tonnes of stockpile grading at 0.5 grams per tonne gold and 0.5% copper. Within the next 12 months, we will reestablish our underground mining rate to 1.6 million tonnes per annum, which will supplement the ore stockpile feed into the processing plant.

The AISC stabilized this quarter at $1,200 per ounce, slightly below the AISC of 2Q21. The Site AISC for Macraes was $1,573 per ounce, up significantly from $1,482 per ounce in 3Q20.

4 - Debt and liquidity

The Cash and Cash equivalent was $113.2 million in 3Q21. Total debt is $250 million in a drawn revolver facility. Liquidity is now $143.2 million, including $30 million available under the revolving credit facility. The Total net debt stood at $224.8 million at the end of 3Q21.

Scott McQueen said in the conference call:

The reduction in our cash balance quarter-on-quarter represents expenditure on planned investments into our key organic growth projects as we had planned for these and we continue to actively monitor and manage liquidity as we move through the peak growth investment period this year [...]

As advised during the July webcast, also at the beginning of the third quarter, we did close an additional $30 million short-term working capital facility, which remains undrawn. Operating cash flow, excluding working capital movements, equated to $0.12 per share for the quarter bringing in the year-to-date cash flow per share to $0.34 fully diluted.

5 - Full-year 2021 guidance

Full-year 2021 production guidance of 350,000 to 370,000 gold ounces at AISC of $1,200 to $1,250 per ounce sold reaffirmed.

The Full-year production guidance is now 350k to 370k gold ounces (from 340K to 380K gold ounces), excluding Didipio, at AISC of $1,200 to $1,250 per ounce sold (from $1,050 to $1,200 per ounce sold) and cash costs of $825 to $875 per ounce sold (from $750 to $850 per ounce sold).

CapEx for the full year 2021 has come down to $275 million to $295 million.

Below is the 2021 Outlook for Haile mine.

Source: Presentation

Technical Analysis and commentary

OCANF forms an ascending channel pattern with resistance at $2.30 and support at $1.81.

The short-term trading strategy is to trade LIFO about 45-55% of your position and keep a core long-term amount for a much higher payday. I suggest selling between $2.20 and $2.30 and waiting for a retracement below $1.82-$1.81 if possible.

OCANF could experience a breakdown if the gold price loses momentum and retests the lower support value.

Conversely, if the gold price can trade above $1,875 per ounce due to a frightening jump in inflation and a continued unwillingness to act from the Fed, then OCANF could break out and reach $1.65.

However, the gold price seems to be trading in a tight range between $1,750 and $1,850, and I do not see many catalysts that could alter this status quo in 2021.

Watch the gold price like a hawk.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

Author's note: If you find value in this article and would like to encourage such continued efforts, please click the "Like" button below as a vote of support. Thanks!

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I trade short-term OCANF occasionally.