Oceana Gold has released a bold market update, predicting it will be operating up to four mines in several countries within five years, but fired a surprise warning shot across the bows of its mainstay New Zealand operations.
While its newly commissioned gold and copper mine in the northern Philippines is ramping up, with relatively spectacular results, given the declining global spot gold price, New Zealand operations in Otago and the West Coast face mine reviews, minimisation of capital expenditure and a possible wage freeze - catching staff and unions unawares yesterday.
Oceana chief executive Mick Wilkes said the company was reviewing the mine plan at Macraes, ''and more particularly Reefton'' on the West Coast, because of the lower global spot gold price.
''We're looking to minimise the amount of capital expenditure ... we're also looking at wages freezes and reviewing all discretionary expenditures to reduce unit operating costs,'' Mr Wilkes said in the update.
Amalgamated Workers Union spokesman Calvin Fisher said, when contacted, he was not aware of any wage freeze proposals.
He said the union and Oceana management were due to begin talks next week, on five collective agreements covering up to 600 workers, at times.
''It has to be acknowledged the mine [Macraes] may be in its twilight years. No doubt Wilkes wants investors to see his long-term appetite is for the Philippines,'' Mr Fisher said.
He said Mr Wilkes had talked up Oceana's long-term prospects at mining conferences in recent years, and with negotiations starting next week, called on him to ''do the right thing by the staff and community''.
On the question of the improving Philippine operations, Mr Fisher noted that ''again'' New Zealand investors ''would be left out in the cold'', having not had any Oceana dividends during 23 years, while the mine was ''plundered'' by a series of owners.
Oceana did not respond to inquiries about Mr Wilkes' wage freeze comments.
Mr Wilkes said: ''I want to assure investors that no one operation will be subsidised by cash flow from another. In other words, each operating mine will have to support its own capital expenditure requirements.''
Craigs Investment Partners broker Peter McIntyre welcomed Oceana's decisions to reduce debt, scrutinise production and maintenance costs and its mines' profitability.
''It's good to see Oceana is taking control of the issues, but it is a bear market.
''The big question is the [future] gold price, which can't be controlled.''
Mr McIntyre said that in the short term, gold's price would stabilise around $US1200 ($NZ1540) but there were more negative risks, such as waning Asian demand, the likelihood of the US dollar gathering strength and European countries' need to sell gold to fulfil European Central Bank commitments.
The catalyst for Oceana's optimistic outlook appears to be copper production in the Philippines offsetting the high cost of gold production there and in New Zealand, meaning Oceana's overall costs are cushioned by copper sales.
Forsyth Barr broker Peter Young said while the Reefton mine had challenges at the current gold price, the Macraes mine had a bit more headroom and Didipio was doing well.
However, Mr Young cautioned that the falling global price copper price would not be helping Oceana.
At a time when competitors' cash costs to produce an ounce of gold were edging beyond $US1000, the copper cushioning meant gold in the Philippines was being produced for between negative $US350 to negative $US50 an ounce, which, averaged across the group, translated to costs of between $US650 and $US850 an ounce.
Mr Wilkes said the market wanted Oceana to ''demonstrate'' Didipio's profitability, and see cash in the bank and New Zealand operations being cash-flow positive.
''We hope to demonstrate this through our reporting over the next couple of months,'' he said.
Oceana had a ''strong balance sheet that is getting stronger'', new low-cost operations at Didipio with cash flow, continued positive cash flow from New Zealand operations and positive exploration results.
''Within the next five years, we can see Oceana Gold operating three to four mines in different countries. We are well placed in the current market to take advantage of that,'' Mr Wilkes said.
For the past 23 years, Oceana's Macraes mine in East Otago has been the mainstay of gold production, but it has alway been acknowledged as a ''marginal'' producer from low grades of gold per tonne of ore mined.
Oceana's update on its Didipio gold-copper mine on the Philippine island of Luzon, commissioned in late 2012, reports ''strong'' copper and gold concentrate production. Guidance this calendar year if for production of 50,000-70,000oz of gold and 15,000-18,000 tonnes of copper.
Across all mines, guidance for calendar 2013 is 285,000-325,00oz.
On the question of the declining global spot price, Mr Wilkes said New Zealand operations had always been focused ''on the marginal ounce'' to maximise profitability.
''We're not strangers to a tight-margin environment and we'll continue to focus on productivity and costs in New Zealand and at Didipio,'' he said.
Ore tonnage throughput at Didipio for calendar 2013 is forecast to hit the planned 2.5 million tonnes, then 3 million in 2014 and 3.5 million in 2015.
