The Philippine mine redesign and its potential to boost cash flow and profits further overshadows the viability of Oceana's New Zealand operations and its high production costs, in the face of the flagging global gold price.
Craigs Investment Partners brokers have upgraded Oceana's stock on the announcement, estimating the future free cash flow generated, after costs, of about $US85 million ($NZ104.1 million), annually.
Didipio's production of copper as a by-product offsets the cost of gold production, to the degree it is a negative gold production cost, with the copper contribution also softening the blow of much higher, and rising, gold production costs at Macraes in east Otago, and Reefton, on the West Coast.
Oceana chief executive Mick Wilkes said after almost 18 months of operations at Didipio, an ''optimisation study'' had identified ''significant value'' from the mine which could be released through increased production, which would improve operating cash flows and see a significant reduction in waste mined ''combined with earlier access to higher grade underground ore''.
Craigs broker Peter McIntyre said with the closure of Oceana's New Zealand mines; Macraes in East Otago and Reefton on the West Coast, ''well defined'', and New Zealand production mostly hedged, Didipio was now Oceana's ''key asset''.
''Didipio's revised mine plan will increase gold and copper output from 2017, ensuring the asset remains in the lowest cost quartile, and retain the long mine life, which we're estimating is about 16 years, including [ore] stockpiles,'' Mr McIntyre said.
Mr Wilkes said underground development would be brought forward by a year, to start during the first quarter of 2015, while access to high-grade ore would be brought forward by two years.
Forsyth Barr broker Andrew Rooney maintains an ''underperform'' stock recommendation, and will not be updating Oceana forecasts until the fourth quarter, when a technical report is due on Didipio.
He notes since mid-July 2011, capital expenditure had risen from $US66 million to $US110 million; albeit offset by by a lower-to-sustain capital expenditure, annual cost in the future.
Mr McIntyre said the Didipio underground mine would begin 80m higher than previous estimates; reducing the size of the surrounding open pit and with 70 million tonnes less waste ore. It would also go 170m deeper.
Capital expenditure on the underground mine would rise by $US10 million ($NZ12.25 million) to $US110 million, plus annual capital development of $US15 million in initial years, but the higher-grade underground ore would lift mill grades by 18%, Mr McIntyre said.
Mr Wilkes said the first underground production was now expected to be in the third quarter of 2017, with full ramp-up to a mining rate of 1.6 million tonnes of ore a year by 2020.
''Commencing the underground operation earlier than originally planned enables faster access to the high-grade ore that resides in the underground reserves of the ore body,'' Mr Wilkes said, in a market update.
The earlier start would allow Oceana to carry out more exploration at greater depth, where Mr Wilkes believed high-grade mineralisation continued below current drilling levels.
While there is some exploration of new prospects on the West Coast and East Otago by Oceana, which could yet be taken towards production, Oceana's existing open pits at both mines and Frasers underground at Macraes are on the knife-edge of commercial viability.
They are pencilled for closure, or mothballing, by the end of 2017, with more than 270 staff and contractors already having been laid off.
During this calendar year, Oceana expects to produce 275,000 ounces-305,000 ounces of gold from the combined New Zealand and Philippine operations, plus 21,000 tonnes-24,000 tonnes of copper from Didipio.
