While strong global spot gold prices will more than offset rising production costs for Oceana, the crucial cash costs per ounce are forecast to rise this year in a range of 57% to 67% - from $US411 last year to as much as $US685 ($NZ538 to $NZ897).
New Zealand's largest gold company has set several goals this year, intending to kick-start its mothballed gold and copper Didipio development mine in the northern Philippines, while expanding the mining rate of its New Zealand open-cast operations and extend its overall mine-life expectations.
Craigs Investment partners broker Peter McIntyre said the three key points for Oceana this year would be the maintenance of global spot gold prices, successfully extending the mine life and maintaining profit margins through control of cash costs.
"They will have to be prudent and not blow out on their cash costs, which is not an exact science," Mr McIntyre said.
Because Oceana has already publicly signalled a possible increase of cash costs by up to 67%, the market has been given a warning and "reasonable explanation", but Oceana will need to deliver on its financial forecasts.
"Its share price could come under pressure this year, having rallied so strongly. They will need to keep the good news coming," he said.
Forsyth Barr broker Suzanne Kinnaird saw several positive features in Oceana's plans for the year ahead, although not entirely painless.
"The rising [gold production] costs are a direct result of the company's decision to extend mine life and are intended to provide short-term pain for long-term gain, the strong gold price enabling them to do this comfortably," she said.
Oceana has said it faces increased costs to production this year as an extra 12 million tonnes of overburden and ore will be moved at both sites - totalling 79 million tonnes - while gold production will be slightly down.
The multiple ploy of increasing New Zealand ore production and reigniting Didipio's development will be reflected in increasing cash costs per ounce.
Oceana chairman Jim Askew said in a market update in late December that in early February, Oceana expects to increase and further expand its estimated gold reserves across New Zealand, for the second consecutive year - having in November 2009 increased resource estimates by more than 40%.
"The decision to increase the mining rates at both the Macraes and Reefton open-cut mines is important to ensure a stable operating platform over a longer mine life in New Zealand," he said.
Oceana's gold production expectations for calendar 2011 are slightly down on the previous year, from 270,000 to 290,000 to 260,00 to 280,000 ounces. It reported a record more than 300,000 ounces in 2009.
Mining at Macraes this year would increase 13% from 52 million tonnes to 59 million tonnes while at Reefton there would be a 25% increase from 15 million tonnes to 20 million tonnes.
To achieve this, Oceana was making a multimillion-dollar investment in a new excavator and two new trucks for Macraes and other equipment for Reefton.
"This is part of an overall strategy to ensure that the New Zealand business remains robust for years to come and that the mine life increases out to seven to eight years," Mr Askew said.
Cash costs for Oceana during calendar year were $US411 an ounce.
Mr Askew said he expected cash costs per ounce to increase this year - to around $US645 to $US685 - and decline slightly in 2012 but to "decline significantly" to below $US400 per ounce in 2013, when gold and copper production from the Philippines contributes to averaging out costs across the company.
Mr McIntyre said Didipio development "has been a long time in the coming" and remained an important project for Oceana, copper has been enjoying buoyant prices and would add diversity to Oceana's portfolio.
Mr Askew acknowledged the increased cash costs associated with the higher mining rate, but diesel and labour costs were also expected to rise and the strengthening New Zealand dollar against the US would also contribute to increased costs.
"In spite of this, strong gold prices continue to drive expanding margins and healthy operating cash flows, which will continue to underpin the business as we execute on our long-term growth strategy," Mr Askew said.
It was planned that detailed engineering designs of infrastructure and the processing plant would restart at Didipio this month. Access road upgrades would be undertaken soon. A general manager of operations at Didipio was being sought, who would oversee recruitment of a Filipino operating team, to be trained at Macraes, then return to the Philippines once Didipio was commissioned.
Ms Kinnaird said that following the disappointing delays to Didipio, which included its mothballing for more than two years due to lack of finance, it would be a "real positive" for Oceana to get development "back up and running".
Oceana's fourth quarter to December and full-year results are released in February.
