The global credit crunch has claimed another victim with Oceana Gold mothballing its proposed copper and gold development in the northern Philippines after a fruitless six-month search for outside funding of about $US185 million ($NZ348 million).
Investors caned Oceana's shares following the news, with them plummeting 18% from 33c to 27c yesterday.
Where once Oceana had a market capitalisation of $500 million after the cashless merger to acquire Didipio in 2006, its overall market capitalisation was further punished yesterday, falling from $53.3 million to $43.6 million.
ABN Amro Craigs broker Peter McIntyre, one of several analysts critical of Oceana's move to the higher-risk Philippines project, said the mothballing announcement came as no surprise, with banks world-wide averse to lending at present, especially to "significant risk" businesses, such as gold miners.
"This is our worst fears confirmed. With the money spent so far there will be no return on capital to show ," he said of the cash spent to date and further costs of the mothballing.
Oceana chief executive Steve Orr said in a market statement yesterday that Didipio in the Philippines was being put under a "care and maintenance" programme, because of the "uncertainty around current financial markets dictates that we affect [sic] this strategy".
Oceana hit a stumbling block in June this year, when the estimated development cost at Didipio blew out by double, to $US320 million and most work was suspended and new business partners sought from around the world.
"The deterioration of global economic conditions has required that we take prudent measures in order to secure and preserve our assets in the Philippines," Mr Orr said.
Mr McIntyre said because of the mothballing announcement, Oceana's operations would come under "close scrutiny" during the next six months.
"Oceana will concentrate on its cash-cow operations in New Zealand," he said.
Mr Orr confirmed New Zealand's largest gold miner will concentrate its efforts into its gold production from Macraes in East Otago, from its open pit and Frasers underground, and open pit Reefton mine, maintaining a record target of delivering 280,000 to 300,000 ounces during 2009.
Mr Orr said fourth quarter 2008 production was expected to increase, having notched up an increase of almost 50% in gold production, when in November comparing its third-quarter result to the corresponding time last year.
"In these uncertain times we are focused on maximising revenue and reducing expenditures to further strengthen our financial position for the near term," Mr Orr said yesterday.
He did not give any estimate of how long Didipio may be mothballed, but Mr McIntyre estimated it could be up to 18-months.
Although Oceana was expected to deliver increased gold production, gold prices in 2009 were expected to remain depressed because of the strengthening US dollar, before recovering in 2010, Mr McIntyre said.
Oceana has yet to secure outside funding of about $US185 million.
Oceana delivered a second consecutive quarterly loss in November of about $US10 million, with the quarter's $US10.9 million loss comparing to last year's $US47.7 million quarterly loss.
Macraes production for the quarter was up 51% on a year ago at 45,843oz, while Reefton operated about 25% above design capacity to produce 17,427oz.
