OceanaGold Corp (OGC) 2010 Q1 法說會逐字稿

Good afternoon. My name is Sarah and I will be your conference operator today. Welcome to the OceanaGold Corporation first quarter 2010 results conference call and webcast. All lines have been placed on mute to prevent any background noise. Today's call is being recorded and will consist of a presentation by OceanaGold's executives, followed by a question-and-answer session. (Operator instructions) 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 2010 first-quarter results conference call and webcast. My name is Darren Klinck, Vice President of Corporate and Investor Relations. Joining us on the call today from Melbourne are Paul Bibby, Chief Executive Officer; Marcus Engelbrecht, Chief Financial Officer; and Bruce Arnold, our Corporate Controller. The format will consist of a Company presentation discussing the first-quarter results followed by a question-and-answer session. I note 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 Paul Bibby to begin the main portion of the presentation.

Good morning from us here in Melbourne and thank you for joining today's conference call and webcast. The first quarter has been a busy and rewarding one for us here at OceanaGold as we continue the process of unlocking embedded value. We've essentially completed the institutional equity raising of CAD86.3 million and then immediately closed out all remaining hedge contracts to create a 100% unhedged gold producer from April 1 this year. We produced 65,291 gold ounces from the New Zealand operation at a cash cost of $551 an ounce.

In March we also poured our 3 millionth gold ounce at Macraes, [conserving] this as a significant mining region with a positive future, particularly as we announced an increase in Macraes' mineral reserves in January of this year of 259,000 ounces. The first quarter of 2010 operational summary for OceanaGold shows that, as planned, gold production in the first quarter at 65,000 ounces was lower compared to the previous quarter, due to the mining sequence we're in at the Macraes open pit.

Also unscheduled maintenance to the autoclave in late March and lower mill throughputs in the Macraes mining circuit also impacted overall gold production. It is very good to report that recoveries were up significantly to 82% from around 79.7% in the fourth quarter of 2009. This improvement is the result of improved stability being experienced across Macraes Processing Plant.

Costs in New Zealand dollars remained relatively stable with a slight increase in diesel as well as maintenance and contractor costs. The Reefton mining operation remained a model of consistency with both mining and processing operating above expectations.

Looking more closely at the operations, and firstly to Macraes' and Frasers' operations, there were no lost time injuries in the quarter, a quarter where we introduced the PASS safety system, which increases the awareness and involvement of employees towards health and safety across the site.

At the Macraes open pit, gold production of 44,165 ounces was lower compared to the previous quarter, as I mentioned before, due to the mining sequence we are in at Macraes open pit. Also lower mill throughputs and the unscheduled maintenance to the autoclave contributed to this. The process plant throughputs were lower than the previous quarter, primarily as a result of harder ore being encountered in the pit. This impacted on the residence time in the milling circuit. As a result, we have changed the drill and blasting parameters, and this has resulted in better fragmentation and improved throughput has been experienced so far in April.

A major win compared to that of 2009 is that recoveries were some 2.5% higher. The improved flotation performance followed after adjustments to the cyclone classification circuit and improved efficiencies and capacities there.

At the Frasers underground mine, some 232,000 tonnes of ore was mined during the quarter, in line with previous quarter, with higher stope grades being recorded.

At the operations of Reefton, in the northwest of the South Island, unfortunately, we had two lost time injuries in the quarter. Both were of short duration. We achieved gold production in the first quarter of 21,126 ounces. The unscheduled maintenance of the autoclave in late March at Macraes resulted in more Reefton concentrate being stockpiled than expected. This stockpile has returned to normal in the second quarter as the stockpile concentrate has been processed.

Mining rates were in line with expectations, and also at Reefton, recoveries have been improved to 84.4%, the highest we've experienced in the past seven quarters.

I'd now like to move to some comments and some update on the development of the Didipio Project in the Philippines. Our internal project optimization was completed in January and the study has been forwarded to our independent engineering firm, Behre Dolbear Australia for review. We selected Behre Dolbear as they had been involved in other similar projects in the Philippines and had a good understanding of the capital and operating costs and the implementation required to successfully complete a similar project in the Philippines. Their review was completed in mid-March. And now the company senior management team is evaluating all strategic options for the project.

In the Didipio Valley, all the community and social commitments continued to be fulfilled. These cover education initiatives, medical programs and missions and improving nutrition there through education and training.

The next few slides I'd like to talk to are regarding the exploration activities that we've embarked on across the New Zealand operations since the third quarter of 2009. These already have delivered increased reserves with further announcements expected as the drilling continues through 2010. Firstly, at Macraes the RC infill drill program to improve confidence on Fraser's 4C and 5 in-situ resource is expected to be completed during the second quarter. The drilling program at Round Hill deposit was completed during this quarter, with results expected in the middle or the second [half] of this year.

The 570-meter drilling program at [South burn (sic -- see presentation )], which is in the southern region when you look at the figure on the right, below our current mining area, which is the central part of the figure, was completed. This tested the downdip extension of known mineralization. We are waiting on the results and what our plans are for this area going forward.

In the northern region, extensive soil sampling and trenching program was completed. The data is currently being analyzed to identify the priority drill targets for focus in the second and third quarter of this year.

Moving to exploration in the Frasers Underground, where we have been focusing on expanding the current mining areas around Panel 2 and extending down-dip. If you take a look at the photograph, there's a lot of color there. But in this photograph there is a green ring around those blue dots. This green line identifies the indicated resource and more than 1568 meters of drilling has occurred, leading to confirmation of further resource and extension of the current mining panels. The objective there is to move out towards where the yellow dots are and increase the inferred resource towards the area within that red circle.

We've also undertaken an extensive amount of surface drilling. Some seven holes have been drilled from surface to a depth of 1000 meters. This is in the bottom right-hand corner of the photograph. Those holes have been spaced some 200 to 800 meters to the east, and we are currently mining in Panel 2. This surface drill program has targeted the down-dip extensions to Panel 2, has been completed in the first quarter, and results are currently being analyzed. And we expect some announcements in the very near future.

Moving to exploration in Reefton, there has been considerable in-pit and mid-pit exploration, and this is proving to be very promising. As a result the exploration -- of this exploration activity, we have then bolstered the team and it now comprises some 13 geologists and field assistants. The first-stage drilling programs have identified a number of extensions to the gold mineralization at Souvenir and in the operating pits of General Gordon and Empress. These results were announced to the market some three weeks ago. And it is likely to lead to enlarged open pit design for General Gordon and also Souvenir.

These are seen in the center of the photograph, sort of the brown and gray areas in the middle of that area map. A structural and geochemical review of the gold field has resulted in first pass rankings of 41 drill, soil and structural targets. A diamond drill program on the six most prospective targets has commenced, and these are the red circled areas in the photograph extending slightly north of that current mining area to within a couple of kilometers of the process plant and to the south.

A [Wacker] drill program to test 14 of the next most prospective targets has commenced. These samples with the Wacker drilling program test the base rock below the ground cover. We expect that Reefton is going to show up to be a very prospective area, and we're quite excited by what we are finding there, as indicated by the press release some three weeks ago.

Thank you for your time. And now I'll hand over to Marcus, our Chief Financial Officer, to take you through the financials for the first quarter.

Thank you, Paul. Moving to slide 12, this slide commences our discussion on the financial results of the first quarter of 2010, ending 31st of March. The financial position of the Company has improved significantly during the previous quarter, primarily as a result of the Company successfully completing a capital raising of net $80 million. This cash injection has enabled the Company to remove one of the main constraints to growth, namely our hedge book.

During quarter one the Company achieved gold sales of 65,041 ounces. As Paul pointed out previously, although impacted by some unplanned processing issues, this is largely what was expected during the first quarter. Cash costs were $551 per ounce compared to $485 per ounce for the previous quarter. The main reason for the increase was the lower ounces produced as the denominator as well as slightly higher diesel costs and some unscheduled maintenance activity.

EBITDA, or earnings before interest, tax and depreciation, excluding hedge gains and losses, was $8.5 million for the quarter. Due primarily to our hedge position this quarter that impacts on revenues as well as the initial cost of removing the hedge book, the Company's cash flow from operations was a net outflow of $10.3 million for the quarter. I will talk a bit more on cash flow later in the presentation.

[Certainly] the hedge position had an impact on the Company's cash operating margin for the period, which was lower at $194 an ounce.

Cash on hand at the end of March was $88.3 million, of which $56.7 million of this was used to settle the balance of the hedge closeout during the first few days of April.

Please turn to slide 13. This slide depicts group results from quarter one in tabular format, comparing this quarter to the fourth and first quarters of 2009. Revenue is appreciably down from the fourth quarter and when compared to quarter one 2009. This is primarily due to our hedge book that required the Company to deliver in the region of 78% of its quarter one production into out-of-the-money contracts. Similarly, EBITDA is down when compared to both quarters.

The fair value of hedges, or the $16.2 million that is reflected, relates to a write-back of our hedged liability attributable directly to the ounces delivered into hedges over the quarter. Net earnings for the quarter were $1.8 million compared to a net loss of $8.5 million in quarter four and net earnings of $9.1 million in the first quarter of 2009.

If the Company had sold its production directly into the market at spot prices, this would have had a $23 million positive impact on both net earnings and cash flow. As from the beginning of April this year, all gold sales will be made directly into the spot market with the Company now able to generate significant free cash flows.

Moving to slide 14, the primary driver for the capital raising in March of this year was to provide sufficient funds to remove the gold hedges in place. This slide reflects the Company's close out of those hedges in line with that undertaking. Immediately prior to the end of March our hedge position was slightly less than 153,000 ounces of gold, roughly half of which required delivery into call options and the other half into flat forward priced sale contracts. Total cost of the hedge closeout was around $72 million at an average New Zealand dollar gold price of NZD1565. We were pleased with this outcome as this compares favorably to the average spot gold price of NZD1564 during the quarter. The price currently on the spot market is in excess of NZD1610. As of 1 April, the Company was fully unhedged.

Please turn to slide 15. This slide reflects the impact of the capital raise and the hedge closeout on our cash position. Our opening cash balance for the quarter was $42.4 million. Settlement of the hedge close out occurred in two tranches. $15.1 million, as reflected in the table, was paid during the last few days of March, and the balance of the closeout early the following month, in April. Net proceeds after costs for the capital raising was $80.1 million, with our closing cash position being $88.3 million.

If the balance of the hedge payment is taken into account that occurred in the first few days of April, the closing balance would be in the region of $31 million. As noticed previously, significant positive cash flow is forecast for the remainder of the year.

Thank you. I will now turn you back over to Paul.

Moving to slide 16, the outlook for the remainder of 2010 is that we remain on track to meet our guidance, guidance which shows production between 270,000 and 290,000 ounces for gold and cash costs at $455 to $495 per ounce. In Q2 you will see production increase as we move back into better areas of the Macraes pit, and there is no planned downtime for the autoclave. That planned downtime was brought forward into late March, during that unplanned shut for the autoclave.

The hedge book closeout has de-risked the balance sheet significantly and created a very exciting gold producer with robust cash flows. Our current focus on the brownfield exploration program across New Zealand operations will result in more newsflow, driven by the seven drills operating at those three mines.

Work is well under way to unlock value in the Didipio Project, which is a key priority for the management team during the second quarter. And we will continue to evaluate various options for growth within our current asset base as we drive to unlock the value embedded in OceanaGold.

Thank you again for taking time this morning, and I hand you back to Darren.

At this time I would like to open up the line for questions. For those who wish to ask questions, we are taking them only through the telephone and ask that you dial in. We will now pause for a few moments while we wait for callers to queue, and I will turn the call over to the operator to assist with facilitating this.

(Operator instructions) Mark Johnson, USAA.

What is the currency assumption on the $455 to $495?

NZD0.68 to NZD0.70.

Okay. There was kind of a very large increase in general and administrative expenses for the quarter. Can you elaborate on the reasons why and also give us some guidance for the whole year on that line?

There was an increase. As you can appreciate, we did considerable work during the quarter around resolving our hedge book that had some costs attached to that. And there was some settlement of hedges during the period as well, which impacted on those costs.

I think a go-forward number that's probably fair is in the neighborhood of $8 million on a G&A basis on a per annum. But obviously, with the capital raising and the like there's additional cost incurred this quarter, and there might be a bit of that that flows into the second quarter as well.

Okay. Finally, what is the CapEx budget for the year and what is it being spent on?

So you are asking what the capital budget was for the remainder of 2010?

Right.

Darren?

As far as capital for 2010, I guess on a per annum basis, Mark, and while we don't give hard number guidance, I think ballpark you can look at kind of that $45 million to $50 million US. Now, the components on that are sustaining capital, rehabilitation, as well as any pre-stripping that is capitalized. Over and above that, of course, you've got your G&A and a little bit of exploration. The exploration budget this year is about $8 million.

All of it capitalized?

Most of it.

Okay. That covers my questions for now. Thank you very much.

(Operator instructions). Garrett King, Truffle Hound Capital.

If a company came to you guys with the right price, would you consider being acquired?

Look, we're always interested to see what's happening. Who knows? We are very excited about the prospects that we have in front of us as a management team, and we're looking forward to executing those. That's where we stand today.

Anna Kassianos, Austock.

Can you just give a bit of an update exactly what's going to be happening on the DPO for this coming quarter and in terms of when we'd be getting a timing on when the board decision would be made, and also what's the more likely option like? Is there any sort of clarity on that?

Also, just to give a bit of guidance on depreciation going forward? It just seems in terms of relative to the last quarter one, it's just a bit up. I guess (technical difficulty) a per-ounce basis on what that's going to be for the year.

So there's two parts to your question. The first one is some clarity around the Didipio process, and the second on depreciation. I'll deal firstly with Didipio.

We received the Behre Dolbear Australia report in the middle of March, and we have commenced our internal review, looking at the strategic options for the project and how we should best maximize the value from that opportunity. We had a full meeting on Wednesday of this week, so two days ago, with the board where we have progressed the information both from a technical and operational view, but also on the options going forward. And pretty well everything is on the table, from going ahead and developing it ourselves, looking for funding to do that, looking at joint ventures and other ways of creating value from the project because, as you recall, the project is one of the higher gold and copper porphyries around, and with current gold and copper prices, the entry bid for the product is very attractive.

Our next board meeting is on the third or fourth of June, and at that meeting we will take further information to the board. And our expectation is by the middle of the year to be in a position to make a public announcement one way or the other.

In terms of the depreciation, I'd like to hand you over to Marcus.

The depreciation was probably slightly higher than we expect for the rest of the year, and I think that's about right. It will be relatively smooth over the period but slightly lower than it is in the first quarter, quarter on quarter.

And also, what would you be saying on a per-ounce basis would it be for the rest of the year, just to get it a bit where it should be, I guess?

Is she speaking about depreciation?

Yes.

I guess it would probably be fair to say we think it's relatively smooth and then divide by whatever you take the midpoint of the guidance, probably something close. I can circle back with you this morning on that.

Yes. No, that would be great. Actually, just one further question as well. On recoveries, when you actually go through and calculate them, they seem to be a little bit different if you back calculate, so -- for Macraes and both Reefton. Are these recoveries -- what sort of recoveries are being reported, just to clarify?

Right.. Well, yes; the thing with Macraes and Reefton is because the back-end processing all occurs at Macraes, when you are calculating the numbers for Reefton, the actual numbers produced in terms of coming out of the plant, and the actual numbers that are sold sometimes do differ in terms of what comes out and also what is still in circuit. So that will give you a little bit of an anomaly. And it just is the nature of the fact that you've got one plant down at Macraes that -- you know, with the autoclave that everything runs through.

Okay. Sure. Thanks.

And, Anna, while you are there, appreciate the research you put out in the last few days, following the [slide present] that you did.

Yes. No, that's all right, that's quite all right.

Okay, any other questions, Anna? All right, operator, we'll turn over to the next question.

Mitch Ryan, Macquarie.

Good morning, guys, it's [Sophie] here. Just a quick question on the hedging, if you could just outline the percentage of production that you sold into the hedges this quarter, and then sort of the total outstanding hedges that have been closed.

I'll hand it over to Marcus, who looked after that and has the numbers.

We delivered 78% of our production in the first quarter into hedges, and we closed out 100% of the hedges by the end of the quarter. So from 1 April we were fully unhedged. That was just under 153,000 ounces that we closed out.

Okay, great. Thanks.

There are no further questions at this time.

Thank you operator. And thank you very much to everyone for dialing in. This concludes the presentation for today. On behalf of the rest of the team at OceanaGold I would like to thank you for your participation. Should you have further inquiries, please feel free to contact the Company directly. Thank you.

Thank you.

Thank you, everyone.

This concludes today's conference call. You may now disconnect.