OceanaGold Corp (OGC) 2009 Q2 法說會逐字稿

Welcome to the OceanaGold Corporation's second quarter 2009 financial results conference call and Webcast. Today's call is being recorded and will consist of a presentation by OceanaGold executives, followed by a question-and-answer session.

Questions can only be taken through the teleconference facility; so if you plan on participating, please dial into the numbers listed on the Webcast page if you have not already done so.

I will now hand the conference over to our first speaker, Mr. Darren Klinck, Vice President - Corporate and Investor Relations. Please go ahead.

Thank you and welcome to the OceanaGold 2009 second quarter and first-half results conference call Webcast. My name is Darren Klinck, Vice President of Corporate and Investor Relations.

Joining us on the call today from Melbourne are Marcus Engelbrecht, interim CEO and Chief Financial Officer; Matthew Salthouse, General Counsel and Corporate Secretary; and [Bruce Arnold], Corporate Controller.

The format will consist of a Company presentation discussing the second quarter and half-year results, followed by a question-and-answer session. I know that this presentation contains forward-looking statements which by their very nature are subject to some degree of uncertainty.

Additionally, all references in the presentation are in US dollars and adhere to Canadian Generally Accepted Accounting Principles. I would now like to turn it over to Marcus Engelbrecht to begin the main portion of the presentation.

Thank you, Darren, and thank you for coming in today. If you could just move to slide number three. I will presume most of you are familiar with OceanaGold. We are based in Melbourne, we have a primary listing in Canada on the Toronto Stock Exchange with a secondary listing in Australia and New Zealand.

We have a project between the Philippines and three operating gold mines in New Zealand.

Since I give this family of the companies and audible since the beginning of the year. Our [gold count] for second quarter was second quarter was 75,000 ounces. We had a record production of 156,000 ounces.

We had cash flow from operations of just over $20 million for the quarter and $33 million for the half-year. Our cash operating margin for the half-year was $356 an ounce, an increase of 19% compared to the first half of 2008. Cash balance of 30 June was just over $21 million.

The balance at the end of the same of 2008 was just under $10 million.

Subsequent to the quarter, end the Company completed an institutional equity placement that was just over AUD24 million. These funds have been the end market primarily increased their mining operations last of mine and finalized feasibility studies in our Philippine project.

I'll talk more about this later in the presentation.

Please turn to slide five. This slide aptly demonstrates the Company's production profiles of the previous five off year periods. At the top of the slide you can see our recent mine was in ramp up between 2007 where we increased production from around 75,000 ounces to 100,000 ounces for the half-year. Roughly that's 200,000 for the year.

[Primarily] during June 2008 our Frasers Underground mine was brought into full operation which increased our production output for the game, to the current level of between 280,000 and 300,000 ounces per annum. It's a level which we will maintain going into the future.

Slide six. This shows the operational results for the first half of the year. Safety remains an area of focus. We had seven loss time injuries reported for the half-year. Although we have initiated a number of programs [and such], this continues to be a priority for management.

Production for the first half was 158,000 ounces of gold. That's compares to 121,000 for the first half of 2008. This is a 31% increase compared to '08.

I suppose the message here is that we have to live with consistent mine production of 75,000 to 80,000 ounces now for three straight quarters.

Our combined cash flow was $349 down for the first half. That is $423 for the second quarter. This is influenced by a stronger New Zealand dollar exchange rate versus the US dollar; lower production ounces; cost space associated with lower grade stockpiles as we used throughout the quarter and slightly higher maintenance [costs].

The grade of ore mine is consistent with the first quarter of the year and $[0.20] higher than the same period in 2008. This is a combination of the nature of the open [pit floor] profile and bringing the Frasers Underground into full production.

Fraser's had no grade in the region of 2.8 as opposed to 1.3 from Macraes and 2.5 (technical difficulty).

Our [mill feed] grade was down 13 in the same quarter on quarter and reflects changes to mining sequences with the open [pits] and utilization of some lower grade stockpiles.

Please turn to slide seven. This focuses on the Macraes Goldfield, which included Macraes open pits and Frasers Underground mine. Gold production was 51,000 ounces in quarter two and 117,000 for the first half of the year. This is down 23% from the first quarter, primarily due to the water slide shutdown as part of the planned maintenance program as part of the planned maintenance program in the metallurgical plants, once there is recovery from the high percentage of recent material processes in the plant.

The shutdown and redirecting of the autoclave in April was fully successful. We brought that back into production fully online. This is something we do every five years and that we are pleased with the way that went.

Open movements of material was up [4.4], all mining the open pits was found. This is due to planned change in mining sequencing during transition from one area of the Fraser's open pit to another.

In the Frasers Underground we achieved a record 223,000 tons, the whole mine during the quarter. During April, we announced the discovery of an additional area of high-grade mineralization but no occurrence panel to mining operations.

[Also the exploration program hit the area late in the presentation.] If we could just move to slide eight.

Slide eight has our recent operating results. We achieved Gold production for quarter two of 23,000 ounces. This was higher than the 7 (inaudible) ounces produced in quarter one primarily due to utilization of gold stock, previously held in concentrate.

The reason processing plant too could remain steady, at approximately $0.20 above boilerplate design (inaudible). Low-grade is 8% higher than the first quarter since high-grade stockpile process were mined in quarter one.

Turn to slide nine.

This is an overview of our Didipio project in the Philippines. This project remains on care and maintenance. We have a reduced workforce primarily at the project site involved with securities and maintenance activity. Some continued to maintain environmental safety and security programs.

We also continued to meet all of our commitments to the local community. In actual fact we are actively involved with various clinics throughout the region, around the project and are financially contributing to providing possible water to a local community as well as providing financial support for education (technical difficulty).

We are continuing to push towards finalizing the feasibility study over our Didipio guard project. Project that we are starting with the fourth quarter 2009.

If you go to slide number 10, the details of our quarter 2 [exploration] and audible. Exploration for the quarter (technical difficulty)

At the Macraes open pit, the program of regional (inaudible) in April [draw] programs were undertaken. At our Frasers Underground mine and then drilling program continued at the (inaudible) discovery as we announced in April which I (inaudible). It was in Boston that a major geological review of the recent gold field.

This is a historically significant area both through hard rock mining and regional mining (inaudible).

In the Philippines fieldwork and desktop basic exploration studies were undertaken on a number of (inaudible). (inaudible) are also currently being developed for (inaudible) premises exploration areas. These are very prospective areas and the (inaudible) there was out there.

Moving to slide 11. This is in our Brownfields exploration program. It is a Macraes oilfield. This is what I (inaudible) the slide and I would like to just mention that what I spoke about earlier that we were successful in raising approximately [AUD24 million] and largely from the (inaudible) 21st of July and the main focus of the raising was twofold.

Basically to enable finalization of the feasibility study on our Didipio project in the Philippines. And secondly in Miami to embark on a [spontaneous] Brownfield expiration program over the next 18 months and near and around on our New Zealand mining operations.

Over the past few years, the Company has been very focused on the Didipio project, but to mainly bring you recent and Fraser's operating line into full production in New Zealand. There's going to be very little Brownfield exploration that is conducted over the past three year and a half years.

And currently even the last of mine rights, New Zealand adds to -- in the region of about four years. Exploration programs is ended, bringing additional resources into reserves and extending the mine life appreciably. [Premium] work is already underway and we have a drill program planned on the open deposit and on the Macraes line (inaudible).

The Frasers Underground, we are focusing on (inaudible) on the extension while current penalty mining area as well as panel 2-D and panel [C] and I will talk about this later.

If you look at the overhead view of Macraes on this slide, the area color is to follow your focus with the brownfield program you can see -- the upper left side is the processing plant. And just below it's delineated them into the red dotted line is our more current open pit.

As you can see, the area of focus is relatively close to where we are operating currently.

Moving to slide 12, this shows our Frasers Underground operation. Panel 2-D is below the current area, the panel C you can see the dotted [search] in the line. We announced that discovery in April, and we will continue with a focused drilling program.

The panel 2 extension is above the panel 2 area that is shown on the slide.

Panel 3. Panel 3 is on the right of that slide and it's a down extension from panel 2, and will be subject to a comprehensive drilling program to an [expiration] drive from panel to. This area is very protected from mineralization.

If you go to slide 13, slide 13 shows the recent brownfield exploration program. Historically this is -- was a mining district with more than 2 million ounces produced through hard rock mining. Additionally it's estimated that about 8 million ounces were taken out through regional mining in the region.

The area is highly protective because you have reserves of 350,000 ounces to meet the resource base of 1.25 million ounces. And our program will be focused primarily on infield drilling between previously identified deposits and areas of mineralization.

If you go to the next slide, we will go over to slide 15 which is a financial summary. Slide 15 shows the highlights of quarter 2. Our sales revenue was up 3.7% to $55 million. We paid at [42.08].

Volume is up 28% to 75,000 ounces. A gain over 42.08 and our average gold price achieved was $679 and higher at $730, compared to quarter one '09.

Earnings before interest taxes depreciation and amortization excluding unrealized gains and losses from derivatives was $22.5 million, compared to $1.1 million for the third quarter. Sorry, for the second quarter '08.

Our net earnings was $40.1 million from date of quarter one '09 profit of $9.1 million. Now our operating costs were $32.5 [million] compared to quarter 2 '08. There's an operating cash flow of just over $20 million for the quarter.

Turn over to slide 16. This is really the group results in tabular format. It compares quarter 2 '09 to quarter 1 as well as quarter 2 '08. And although operating costs are appreciably down from quarter 2 '08 they are higher when you compare it to the previous quarter.

This is due primarily to the exchange rate differential between the New Zealand and the US dollar's exchange-rate for reporting (inaudible) as well as higher stockpile costs due to scheduling changes. This is the impact of pricing that quantity of low-grade stockpile and in addition to recent stockpiles which when processed carry a higher cost rate.

As you can see, the saved value adjustments, the hedges, the gain is just under $50 million for the period. This is the result of gold deliveries into our hedge position as well as a lower US dollar gold price. (inaudible) are calculating the current value as compared to first quarter.

Turn to slide 17. This shows the highlights of the year-to-date results. The revenue for the first half of the year was $110 million, compared to $115 million for 2008. 2008 we successfully rolled forwards our hedge position and the revenue recorded [reflect] sales into the stock market gain.

'09, however, we delivered about 60,000 ounces into our hedge commitment at a price of about NZD773. Volume is up 23.6% to 156,000 ounces over the first half of 2008.

The average gold price received was lower due to delivering into those [hedges] that I spoke about. Our EBITDA excluding the gain on derivative was $53.4 million for the first half completed $22.8 million for the first half of 2008.

Net earnings of $49.2 million compared to the first half. (inaudible) of $30.4 million. Low operating cost [up to 56.9]. A decrease of $32.7 million compared to the first half of '08, which was (inaudible).

Due to the increase decrease sufficiently from the operating cost fueled an increase decrease appreciably from last year. And as an example, New Zealand really [clipped] its 590 hydrant in South Island. Last year we included dry spell and then it turned around and then prices have come down accordingly.

Operating cash flows (inaudible) were $43.4 million for the first half.

Go to slide 18. This is a slide with some of the numbers I believe already spoken to. I'd just like to talk really about our derivative position. Derivatives will be fully extinguished by December 22 from 2011, or gold sales will be made straight to the stock market.

The Company during this period of transition into reporting taxable income and consequently it's both income tax using tax logs. So this is a non-cash line.

Turning to slide 19. This is a wonderful chart. It takes the changes from our cash costs in 2008, $532 per ounce, while cash flow reported for the first half of this year is $349.

The weakened New Zealand dollar had an impact of $62. Our fuel and electricity contributed $46 and $37 respectively. Waste stripping was also leveraging this reporting period. Due to the increased production however we had increased royalty payments of $18 or around.

That brings us down to the $349.

Turning to the final slide, slide 20. I would like to talk about the outlook for 2009. The 2009 guidance for gold production, of 280,000 to 300,000 ounces at a cash cost of $365 to $405 ounces is maintained. Our (inaudible) gold production of 158,000 ounces.

The philosophy about the same and was a [wrinkle] to the Company. New Zealand operations continues on track (inaudible) our production and a the management team we are -- continue to be committed to delivering consistent results against the same quarter on quarter.

I think we've done that over the last three quarters consistently. In the Philippines a feasibility study, although the Didipio project is ongoing and we have to complete that during the rest of the year.

And our Brownsville exploration program. Again, we committed to materially extending that (inaudible) New Zealand operation. But (inaudible). We believe that the definition of good and material value (inaudible) for the Company.

We're firmly resolved the initiative to expect this to come up before the end of the year.

Thank you. That is all for my presentation. I will hand you back to Darren Klinck.

At this time I would like to open up the line to questions. (Operator instructions). I will turn the call over to the Operator to assist with facilitating this.

(Operator instructions). [Garret King] from [Trufflehound] Capital.

I had a question about the sequential cost of sales increase from Q1. After accounting for the strength of the New Zealand dollar, would you say that the lower grades are the largest factor in accounting for this cost increase?

The second highest area really is the increased cost in stockpile. And you are right.

The reason for that, because they are processing lower grade stockpiles, they have a higher cost the attached [Browns] produced. So yes that is the main reason after the exchange rate.

Okay. And my second question was the fact that I guess, regarding this -- your Company sells for a substantial discount to its peers when you evaluate it on the basis of enterprise value per ounce of estimated 2009 production. And as far as I can see, this is due to a lack of visibility in North America and perhaps also to the gold hedge book.

Do you currently have any plans to increase the Company's attractiveness on either of these levels?

That's a good question ^ I think you're right. We are undervalued to the company. We need to, I suppose, take the message out there that we are consistently operating and as we will be able to meet all of our needs commitments for the next 17 months, I suspect that that hedge book is being out in the market and seen in a negative light. I suspect that once we've crossed that point into 2011 where all our production will be going into spot price that would be realize it.

So we want to increase our visibility; and we will be delivering into that hedge position. And I suspect then that we will get a reranking by the market.

But there are currently no plans to use operating cash flow at a buyback for that hedge book?

No, not at this stage.

[Ian Graham] from [ACC].

Good morning. I'm feeling you need to -- the Company so just for my benefit I guess the production you mentioned today is 156 sales announcements. The guidance was 280 to 300. Is the second half for any reason, historically lower than the (inaudible) stuff? I mean that's obviously simple math would say you're going to be well above 300 if you maintain those production rates in the future.

Not really. What happened is because of the open pit nature of the operation, we go through some higher and lower grade areas as we wind down into the pit. And the second half is typically one of those times. Then that's (inaudible) we will then move on to higher grades again.

So no. It's just a matter of the sequencing and the mine design.

Right. Okay. And secondly, from what I gather, there's been a shift in which I generally gathered at a management legal and governance legal. And can you just touch on what's changed philosophically? Over the last 12 months?

I mean, what do you have -- what the new management team is going to do differently? I guess there, I think maybe we just cut it off that some -- I mean, you tried a heavy discount so just wonder if this is the reason -- not the reason as being historical discomfort with the management.

I mean the Philippines hasn't exactly been successful, I mean. Can you just talk to that issue?

I think on a governance level there hasn't really been a change. We as a company we have always focused on governance as one of our key areas of success. We have processes both within the Company to manage that. We haven't really changed that.

On the management side of things, we are in a different world than we were last year. The reason our Didipio project bring on the care and maintenance, primarily, was the result of the world we were in, using inflationary environment or interest was going through the roof, the cost of steel labor etc.

I think the management decision last year to put that on care and maintenance was a good one. Current management would have made the same decision. I think the world we are in now means that we focus on different issues. And the issue for us now is really looking at extending our lack of mining New Zealand.

I think we've recognized that there's value added to the Company, that's probably highest on our list at the moment. I suspect that if they welcome a management change that wouldn't be any different.

Very good. Thank you.

(Operator instructions). There are no further questions at this time. Please continue.

Thank you. That concludes the presentation for today and on behalf of the rest of team at OceanaGold, I would like to thank you for your participation and should you have any further inquiries to please contact the Company directly. Thank you.

Ladies and gentlemen, this concludes the conference call for today. Thank you for your participation. Please disconnect your lines.