OceanaGold Shareholders Face Setback After Miner Retracts Waihi Production Target & Economic Forecasts

Summary

• OceanaGold Corporation (ASX:OGC) is facing a setback on the exchange with its share price tumbling by ~ 12.67 per cent in the past few trading sessions.
• The market has reacted sharply to the change in the Waihi project dynamics post the company retracted Waihi Production Target & Economic Forecasts.
• The latest announcement from the miner came as a shocker for shareholders with ASX advising the Company that based upon the percentage of Inferred Resources used in the Waihi PEA, OGC may not have a reasonable basis for the production targets and economic forecasts disclosed in the announcement.

OceanaGold Corporation (ASX:OGC) is facing a setback on the exchange with its share price tumbling by ~ 12.67 per cent in the past few trading sessions over the retraction of the production target and financial forecast posted by the Company for Waihi District in July 2020.

The latest announcement from the miner came as a shocker for shareholders with ASX advising that the Company may not have a reasonable basis for the production targets and economic forecasts, based upon the percentage of Inferred Resources used in the Waihi PEA.

ASX market reacted sharply over the announcement with the stock of the Company falling ~ 5.2 per cent in a single trading session to reach a low of $2.550 (as on 22 September 2020 11:30 AM AEST).

Investors consider economic and feasibility assessments, as one of their prime criteria while making an investment decision, and the latest suggestion by the Company to not consider the projected targets and economic forecasts included in the announcement dated 17 July 2020 has originated a shockwave.

In response to the retraction, the stock has seen some intense sell-off in the market, accelerating its downtrend from $4.290 to the recent low of $2.550.

Base of Preparation and OGC Comments

OGC suggested that the Waihi PEA was prepared in accordance with the Canadian National Instrument 43-101 Standard of Disclosure for Mineral Projects, and also received a review and a sign off from a Qualified Person.

• The Waihi PEA also considered the extensive history of exploration and mining within the Waihi district, including an open-pit mining since 1988 and underground mining since 2004, while constructing the PEA.
• The Company believes that much of the resource at Waihi district would be mined going forward and a majority of it is in the extensions of the veins mined over the past 32 years.

Apart from that, OGC suggested that the basis of PEA preparation was an extensive experience, which provided high confidence in assessing the continuity of mineralisation and mining conditions at Waihi, including 50 independent studies undertaken by the miner.

• However, in discussion with ASX, OGC has now decided to retract the Waihi PEA announcement, but the Company continues to advance the Waihi district opportunities with the development of the Martha Underground project.
• Furthermore, OGC anticipates that the Marth Underground would reach the first production in the second quarter of the year 2021.
• Apart from that, the exploration drilling across multiple targets at the Waihi district is currently ongoing and the work to convert Indicated Resources is also underway.

Economic Assessment, Production Forecast, and Mineral Resources for Waihi

• Economic Assessment

As per the Company, under the base case scenario of $1,500 per ounce gold price, the project initial after-tax internal rate of return (or IRR) is 51 per cent with an initial after-tax net present value (or NPV) of USD 665 million at 5 per cent discount rate.

• The life of mine (or LOM) after-tax free cash flow is projected ay USD 1.1 billion with a LOM all-in sustaining cost (or AISC) of USD 627 per ounce.
• The LOM cash cost is projected at USD 557 per ounce with an initial mine life to 2036 from multiple sources of mill feed.
• The total growth capital investment is projected to stand at ~ USD 447 million over eight years for four distinct deposit.

Waihi Project Economics Assessment (Source: Company’s Report)

• Production Forecast

The PEA assumed an initial production of 2.2 million ounces of gold, post the application of metallurgical recoveries averaging 90 per cent over the LOM from the four deposits, namely, MUG, WKP, Gladstone and MOP5.

Waihi Production Assessment (Source: Company’s Report)

• OGC suggested that the average annual gold production is the reflection of the total production expected from the prospect over the initial mine life, including a ramp-up period.
• Furthermore, the anticipated production assumed UG mining at MUG and WKP deposits and conventional open-pit mining at MOP5 and Gladstone deposits.

The initial production from MUG in 2021, which the Company reiterated to commence during the second quarter of the year 2021 would stand at 35,000 to 45,000 ounces.

• Updated Mineral Resources

Since 2017, OGC completed 100,000 metres of drilling from surface and underground at Martha and approximately 35,000 metres of drilling at WKP, leading to the identification of Indicated and Inferred Resources, which along with optimised mine design lead to the following modifications.

• Merger of the Martha Phase 4 resource into the MOP5 open pit resource, leading to the declassification of 77,000 ounces of Mineral Reserves at Martha Phase 4 open pit for inclusion in the larger open pit mineral resource.

In the previous announcement dated 17 July 2020, OGC suggested that such changes have led to an increase in the resource for the Martha Open Pit, which now stands at 260,000 ounces of gold in the JORC classified Indicated Category.

• Apart from that, the Inferred Resources for the prospect now stands at 290,000 ounces.
• Likewise, the Indicated Resources at the Gladstone deposit increased to 140,000 ounces from 100,000 ounces while the Inferred Resources surged to 200,000 ounces from 100,000 ounces.

The net result of these changes is an increase of 140,000 ounces of gold in the Indicated category and 240,000 ounces of gold in the Inferred category.

The snippet of JORC classified Indicated and Inferred Resources for various resource area is as below:

Source: Company’s Report

The economic assessment, production forecasts, and updated mineral resources had captured the eye of many investors with the stock of the Company surging on ASX from $3.225 (intraday low on 17 July 2020) to the recent top of $$4.290, marking a price gain of ~ 33.0 per cent.

However, now with the retraction of the Waihi projects dynamics, shareholders are facing a setback with the stock hitting an intraday low of $2.550.