Otago gold miner Oceana Gold appears to be preparing to cut back its development proposal for its mothballed northern Philippines gold and copper mine in order to begin generating some cashflow.
The Didipio project was mothballed in December after development costs doubled to $US320 million ($NZ606 million) last June.
The East Otago-based miner has been unable to find a joint-venture partner, largely because of the ongoing credit crunch and risk-averse investors and major lenders.
It was understood Oceana had spent about $US120 million on Didipio and was seeking further funding of about $US200 million.
At present, its income comes solely from its Macraes open pit and underground mine in East Otago and open pit mine in Reefton on the West Coast, with a forecast record production of 280,000 to 290,000oz still being touted.
While Oceana yesterday declined to confirm the cutback plan, a source close to the company, who declined to be identified, yesterday said Oceana intended scaling back the Didipio proposal in order to generate some cashflow.
Analysts have been concerned about Oceana buying into the project.
While the mine had potential, doing business in the Philippines carried significant risk, which could turn investors away.
Oceana's vice-president of corporate and investor relations, Darren Klinck, was contacted in Melbourne yesterday and said it would be "premature" to comment on reports of cutting back the Didipio project.
However, he said expectations of the amount of capital required, the recent easing in some commodity and labour rates and favourable currency rates meant the Didipio development was considered "materially less [costly] than assumed in May 2008. But we can't quantify that at this point.
"We are still considering all options for the Didipio project and this includes rethinking the scope of the project, as well as re-examining the capital [required] to complete.
"Commodities [values] have come off materially in some cases, such as oil, steel, concrete, labour and contractors in the past six months," he said.
Didipio is expected to produce around 120,000oz of gold and 15,000 tonnes of copper concentrate a year in its first 10 years of production.
ABN Amro Craigs broker Peter McIntyre said it was "entirely feasible" Oceana would want to start a small operation now and expand it later, but still crucial was finding a joint-venture partner for the overall development.
While set-up costs for Oceana would prompt "more stress on its balance sheet", some small amount of gold and copper production would be a good incentive to promote production potential to possible joint-venture partners, he said.
"They need to get some return on the capital spent to date - about $US120 million - as the pressure is still on Oceana's New Zealand operations as the cash cow," Mr McIntyre said.
At a mining forum in Manila earlier this week, Horacio Ramos, director of the state agency Mines and Geosciences Bureau, told Reuters: "They want to proceed, but they want to cut back expenditures up to a production level that's acceptable to them."
Mr Ramos said Oceana was looking to trim its planned investment and production volume in the Didipio mine but had yet to decide the size of the cut.
Oceana may have to revise its feasibility study to reflect a reduced production volume, Mr Ramos said.
Natural resources minister Lito Atienza said earlier this month his agency had given Oceana up to six months to resolve its funding problem and restart development.
