OceanaGold Corporation (TSX & ASX: OGC) has extended the mine life of its Waihi mine on the North Island by a decade and remains hopeful a similar life extension is in store for its mainstay producer Macraes, north of Dunedin.
Consents for a new underground mine were announced this month for Waihi, which added the extra decade to its mine life, while at Macraes strong results from $7.63 million of exploration underpinned the likelihood of “many years” of operation ahead of it, chief executive Mack Wilkes said at the time.
Formally, the mine life at Macraes remains at 2021. While having downgraded its expected gold output earlier during the year, strong third quarter trading prompted a gold production upgrade in October by about 15,000 ounces.
The group’s 2017 record 574,606 oz will not be bettered, but 2018 is expected to come in now at between 515,000oz and 545,000 oz.
OceanaGold's four mines across New Zealand, the Philippines and in South Carolina in the US all now have either underground components or are heading underground.
From an open pit-only operation working solely from its Macraes operation, starting almost 30 years ago, OceanaGold has evolved into one of the most efficient low-cost operators in the mid-tier of the global sector.
Most recently the company had the green light from councils at Waihi to develop a new underground operation, the Martha Project, which also includes resumption of pit mining following its closure in April 2015 because of rock falls.
The flag has also been flown at Macraes - where the Frasers underground has been in operation for several years - about the possibility of a new underground operation. Higher gold grades from underground have consistently boosted overall gold production.
Historically about 1 grams/tonne of gold ore comes from Macraes pits, while underground is 2 g/t.
Craigs Investment Partners broker Peter McIntyre said OceanaGold's share price was trading around the 12-month target price. That had recently been revised downward from $4.30 to $4.20.
“Oceana is consistent with other gold producers in our Australian coverage list,” he said.
Craigs long term forecasts were based on gold at $US1,300/oz, the Australian and US dollar exchange rate of US75c and New Zealand and US at $US63¢.
McIntyre said key risks for OceanaGold included a delayed ramp-up of operations at Haile in South Carolina and macro risks, such as lower gold and copper prices and the effects of foreign exchange rates. Positives included better operational performance, continuing cost deflation - currently being experienced across the industry.
In a market update in October, Wilkes said an 11-month drilling programme, of 287 holes totalling 33.2 kilometres was “exceeding our expectations.”
The prospects at Macraes were Coronation North, Golden Point and Deepdell North, plus further drilling around the existing Frasers underground. For the calendar year at Macraes, Wilkes said production was significantly higher than in previous years, due to discovery of higher grade ore at Coronation North.
“I remain confident that the Macraes operation will be an important part of the OceanaGold business for many years to come,” he said at the time.
Macraes employs about 650 people and in 1990 had a seven-year mine life, just two years in 2007 and a reported four years in 2013. OceanaGold was still investigating the technical and economic viability of its Round Hill project at Macraes, which meant a “'potential redevelopment.”
Wilkes said that could add an incremental 10 years of mine life to operations. The company still owns the Blackwater mine near Reefton on the West Coast, which closed in 1951 after a tunnel collapse, and have a prospective developer. Late this month private Australian company Tasman Mining was issued a 20-year mining permit by NZ Petroleum & Minerals.
If it decides to go ahead with mining, Tasman's owner Mark Le Messurier has an option to buy Blackwater. At an estimated cost of $US30 M ($NZ44.3 M), Le Messurier wants to develop a 3.3 km tunnel then carry out underground drilling to better define gold content at Blackwater.
A further $US40 M would be required to get into production. There is an estimated up to 700,000 oz of gold still at Blackwater without detailed drilling.
The crucial all-in sustaining costs guidance for calendar 2018, averaged across OceanaGold's four mines, remained unchanged in an October update, in a range of $US725-$US775/oz.
With strong cashflows, debt repayments and dividends for shareholders, OceanaGold now only needs to keep its cash costs within the forecast range, as it moves toward its 29th year of operations.
*Simon Hartley is senior business reporter and assistant chief reporter for the Otago Daily Times.