High gold prices eclipsed any concern of increasing production costs for East Otago-based Oceana Gold during its latest quarter of production.
Triple-listed Oceana, the third largest gold producer in Australia and New Zealand, has been able to sell all its gold on the open market since April, making the most of record prices which peaked at $US1374 ($NZ1822) earlier this month.
While cash costs per ounce increased and production was down for the quarter to September compared with a year ago, Oceana made large gains by selling 67,672 ounces at an average price of $US1232, compared with $US838 for the same period a year ago.
Craigs Investment Partners broker Peter McIntyre said it had been an "astounding" turnaround for Oceana, which had a market capitalisation of just $55 million three years ago. Its shares yesterday were valued at close to $1.2 billion.
"Even though production is down slightly, they are enjoying riding the wave of higher gold prices; which is reflected in their net earnings," Mr McIntyre said yesterday.
Following the announcement, Oceana shares were up almost 1.1% at $4.65.
Oceana booked an after-tax profit of $US13.6 million for the quarter, slightly down on last year but well up on the previous quarter to June profit of $US7.95 million.
The crucial production cash costs per ounce rose from $US473 a year ago to $US568 for the quarter, and while that increase would usually ring alarm bells, Mr McIntyre said Oceana's average sale price a year ago was $US838 per ounce, compared with $US1232 this year, with the profit margin per ounce increasing to $US664.
"The next 12 to 18 months will be a cash-cow [period] for Oceana. With the weak US dollar, gold prices appear set to remain buoyant for some time."
The extra cash would help Oceana get its mothballed gold and copper mine development at Didipio in the northern Philippines "back on track", following a recent successful capital-raising of $NZ151 million, destined for Didipio's development.
Oceana signalled early in the year it would not be able to repeat its record 300,391-ounce production of last calendar year, as it was mining through lower grade ore.
For the quarter to December it produced 68,763 ounces, 1222 ounces more than the same quarter a year ago, and the company said yesterday it remained on track to deliver within its guidance range of 270,000-290,000 ounces for the calendar year.
Oceana said its increasing production costs were due to the weakening US dollar and higher costs of operation, which Mr McIntyre said would have been in wages, energy and possibly the cost of exploration around Macraes.
Oceana completed 3600 metres of underground exploration drilling at its Frasers underground mine at Macraes and a further 7600 metres at its Reefton project on the West Coast.
