Mining analysts tip bright future for OceanaGold

So companies that can go against the trend and cut costs are going to be rare beasts in the years ahead.

One such is the Melbourne-based tri-market listed (Australia, Canada and New Zealand) gold producer, OceanaGold Corporation (ASX: OGC).

An established gold producer from operations in New Zealand at cash costs of more than $US600 ($565) an ounce, OGC is on its way to becoming a $US400 an ounce producer from 2013, thanks to last week's decision to resume the development of its Didipio gold and copper project in the Philippines.

That would place OGC in the bottom quartile of the global cost curve which, in the March quarter this year, had the global average cost of production at $US572 an ounce, a 13 per cent year-on-year increase.

OGC's dramatic shift down the cost curve means that mining analysts have set the most aggressive share price targets for the stock you can find anywhere in the sector.

OGC last traded at $2.37 a share. Goldman Sachs has a 12-month share price target on the stock of $3.55. Citi reckons a $5 a share target is the go while Macquarie has pretty much split the difference and gone for a target of $4.40 a share.

Those aggressive share price targets reflect the transformational nature for OGC of Didipio, located in northern Luzon. Based on an initial mine reserve which is good for 16 years, annual production at Didipio is forecast at 100,000 ounces of gold and 14,000 tonnes of copper.

Life of mine cash costs have been put at a super-competitive $US356 an ounce (net of by-product credits for copper at a conservative $US3 a pound) and will have the effect of dragging total group costs of production down to $US400 an ounce.

And thanks to higher copper production in the first six years of the project, the cash cost of the gold output will be a negative $US79 an ounce (after copper by-products). It is little wonder then that OGC pushed the button on a resumption of Didipio's development last week.

The key word there is resumption. Didipio would be in production today if not for the September 2008 start to the global financial crisis, and before that the sorts of delays and frustrations normally associated with mine developments in the Philippines.

Non-government organisations run riot in the country. But the tide looks to be turning, with the majority of the population wanting the economic and social benefits that mining projects can deliver at the regional level.

At the national level, the government has been kicking some goals too. Last week, Moody's upgraded the country's credit rating.

"The upgrade was prompted by the relatively high degree of resiliency exhibited by both the country's financial system and external payments position in face of the global financial and economic crises," Moody's said. "International reserves of the central bank are at a historical high and exceptional policy measures have not been required to shield the banking system."

NGO activity aside, that's got to be comforting for OGC which has to spend $US173 million on getting Didipio to the starting line in the fourth quarter of next year.

CENTAURUS GROWS

Centaurus Metals (ASX:CTM) has added an export leg to its domestic Brazilian iron ore development plans, pressuring the market to have another look at its valuation of the stock.

The group has acquired the Serra do Lontra iron ore project in the south-east of Brazil which it says could be in production by 2014 at an annual rate of 1-2 million tonnes.

Forecast costs of $US32-$US43 per tonne loaded on to the ship compares with the (current) export selling price of $US150-$US170 per tonne, demonstrating the export project has some real appeal for a stock that last traded for 8.4 cents or a market capitalisation of some $71 million.

As it is, the stock was drawing valuations from brokers that were multiples of its current share price before it added Serra do Lontra to the portfolio.

On the strength of its plan to sell up to 3 million tonnes of iron ore in to Brazil's domestic market (steel mills in the famed Iron Quadrangle), Centaurus had scored a 12-month price target of 25 cents a share from Hartleys and 21 cents a share from Ord Minnett.

So it will be interesting to see where the stock goes from here. Unlike the rail and port infrastructure constraints faced by Australia's iron juniors in the Pilbara, Brazil offers low-cost solutions to help juniors export their product.

For Serra do Lontra, the plan is to truck the iron ore 140 kilometres on existing sealed roads to the deepwater export port of Ilheus. It is the sort of coastal dig and truck strategy that Atlas Iron has used to such great affect in the Pilbara.

Ilheus is an open-access, multi-user port which is best known in this part of the world for being the one used by ASX-listed Mirabela Nickel as the export point for its Santa Rita nickel sulphide project.

Centaurus reckons that after talks with the port authorities, it should be able to upgrade existing storage and berth facilities to handle its planned production rates at Serra do Lontra.

There is a lot of work to do before Serra do Lontra becomes a reality. Most notably is the need to confirm a supporting resource base of 30 million to 50 million tonnes of mineralisation suitable for upgrading to a high-grade export product. Still, a second leg to the Centaurus story can't hurt.

Authors: mining - Yahoo! News Search Results

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