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The valuation, earnings, and progress of a company vary with the volatility of the commodity prices. At the advent of global uncertainty, some commodities such as copper or oil and gas witness their price fall due to the economic slowdown, whereas gold increases under such turmoil. In the milieu of which, it is quintessential demystify the relationship between commodity price and the company stock performance. For the same, we have chosen two company, one from the gold sector, i.e. OGC and another FAR from the energy sector.
OceanaGold Corporation (ASX: OGC) is an ASX listed multinational Company. It has global operations, exploring, developing and producing gold. It is also listed in Toronto Stock Exchange (TSX) and has business ventures in New Zealand, Philippines and USA.
Interesting Read: Gold Takes A Breather; Global Economy Bolsters And AUD Appreciates
Stock Comparison and Trends
The stock of OGC moved in the opposite direction to the S&P/ASX 300 Metals and Mining Index (XMM). The price of XMM fell by ~2% while the share price of OGC increased by ~3% during the interval of 13 Jan-13 Feb 2020, as shown below. The share price of the Company reached highest A$3.06 on 31 Jan 2020 whereas XMM index price fell to A$4533.822 on 31 Jan 2020 from its maximum value of A$4809.030 recorded on 22 Jan 2020.
Source: Australian Stock Exchange
The variation in trends between XMM and OGC is testimony to the movement of gold price in comparison to other commodities. At the time of uncertainty, the price of gold tends to move up, whereas other commodities tumble due to the fear of a slowdown in the economy. XMM plunged from its maximum value during this interval to A$4427.785 on 3 Feb 2020 owing to the deadly spread of coronavirus while the share price of OGC rose by 13.3% from A$2.7 to A$3.06.
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Operating Performance
During the Dec 2019 quarter, the production from the United States and New Zealand operations increased by ~20% from previous quarter backed by stronger production from Haile and Macraes operations. The production guidance of 2019 met with Q4 production of ~ 108,151oz of gold. The annual production of gold in 2019 stood at ~ 470,601oz and 10,255t of copper. The cash cost and AISC during the year were reported at ~US$733/oz sold and ~US$1061/oz respectively.
In 2019, the Company’s Haile operation in the USA processed around 3.2mt as per the management’s expectation and presently milling at 3.5mtpa. Whereas, the Company reported a steady production at Waihi in New Zealand complemented by the 20% quarter-on-quarter (q-o-q) increase in production from the Macraes operation. The Martha UG mine is likely to start producing from the Q2 of 2021.
The FY20 guidance of the Company is around 360-380koz at a cash cost of US$675 – 725/oz and AISC of ~US$1,075 – 1,125/oz. At mine level, Haile with 180 – 190koz, Macraes 160 – 170koz and Waihi 18 – 20koz. The cash cost value is anticipated to be US$650 – 700/oz, US$725 – 775/oz and US$700 – 750/oz sold while AISC at US$1,080 – 1,130 /oz, US$1,000 – 1,050 /oz and US$715 – 765/oz sold for Haile, Macraes and Waihi operations respectively.
Also, recently the Company announced an increment in Martha UG mineral resources estimate, i.e. ~ 4,926kt of indicated resources volume at 5.2g/t of gold and 4,096 of the inferred amounts at 4.66g/t of gold resulting in a total of 1438 koz of metal contained.
Great Read: Equity Charmer, Gold's 2020 outlook
The stock of OGC fell by ~2.8% to A$2.79 on 14 Feb 2020 from the previous traded value of A$2.87. Its 52 weeks high and 52 weeks low stand at A$4.84 and A$2.49, respectively, and has a market cap of A$1.79 billion.
FAR Limited (ASX:FAR) is an oil and gas (O&G) exploration and development company. It is an independent, African focused Australian listed company.
Stock Comparison and Trends
FAR as well as S&P/ASX 200 Energy Index (XEJ) fell in line with the tumbling O&G prices. The Brent crude oil and US (Henry Hub) both fell from mid-Jan to Feb due to the hotter-than-normal temperatures across most of the northern hemisphere as well as the advent of the coronavirus outbreak.
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Source: Australian Stock Exchange
The XEJ price fell by ~8% from A$11,957.88 on 13 Jan 2020 to A$11,022.296 on 13 Feb 2020. During the same interval FAR share tumbled by ~22.7% from A$0.044 to A$0.034 which is in line with the Brent Crude (BZ: NMX) price, which plunged of 12.3% in the same time frame from US$64.2/barrel (b) to US$56.3/b.
Must Read: U.S. Shale Oil and Gas Output To Jot-Down Record Production
Operating Performance
During Dec 2019 quarter, Sangomar Field Development and Exploitation Plan were submitted to the Government of Senegal. Following which, approval of Sangomar Field development was received and for the same, FAR took final investment decision with JV participants and full notices to proceed (FNTP) have been issued by the operator to the critical contractors for the commencement of the Sangomar Field development programme.
Also, the Company acquired a 10% interest in Gambian blocks and updated combined prospective resources to 1.2billion barrels on a 100% basis, with 621 million barrels attributable to FAR. Further, Elisha Larkin – with experience ranging from commercial to governance positions, was appointed as a Company Secretary (C.S.). Before joining FAR, she was a senior executive and C.S. of Hexima Limited, a biotechnology company.
Good Read: FAR Announced Equity Raising to Execute Its Funding Plan for Sangomar Field Development (Phase 1)
In Dec 2019, FAR announced the placement to institutional and sophisticated investors and a Share Purchase Plan (SPP) to existing eligible shareholders worth A$146 million (~US$100 million), priced at 4.25US cents per share. The SPP witnessed strong support raising A$11.18m on the 14 Jan 2020. The Cash and cash equivalents at the end of the quarter were reported at US$13.753 million.
The share price fell by ~5.6% to A$0.034 on 14 Feb 2020 from the previous traded value of A$0.034 due to the rejection of arbitration initiated by FAR Limited against Woodside Energy (Senegal) B.V. by the International Court of Arbitration of the International Chamber of Commerce. The Tribunal announced the proceedings in favour Woodside, nullifying FARs pre-emption rights over Woodside’s 2016 transaction to enter Rufisque offshore, Sangomar Offshore and Sangomar Deep Offshore JV.
Its 52 weeks high and 52 weeks low stand at A$0.081 and A$0.028, respectively, and has a market cap of A$0.031 million.
