Monsters of Rock: The ASX resources sector’s 2022 comeback kid is … OceanaGold
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Australian gold stocks have been known to claim unfair treatment in recent times from investors, like Jurgen Klopp complaining about a penalty decision.
But the reality is many are dicing with lower ore grades, higher costs and ambitious capex programs that are eating into earnings.
While stronger gold prices in 2022 have sent the gold index up 6.7%YTD, producers of the precious metal are still a long way off the heady valuations they hit in August 2020 when the gold price rose to its record of almost US$2100/oz.
One name is currently standing out as a genuine comeback kid though in OceanaGold Corporation (ASX:OGC).
OGC has in recent years been stunted by environmental crackdowns in the Philippines which prompted the temporary closure a few years ago of its Didipio gold and copper mine.
That operation is now back up and running and OceanaGold is in serious turnaround territory.
$2.4 billion capped OGC was up 7.86% today and more than 42% year to date after some strong March quarter production results.
It was once one of the top performing mid-tier gold stocks, having at a five year high of $5.12 in early 2019 before dropping to a cyclical low of $1.80 a year later.
OGC shares are now fetching $3.43, almost double their early 2020 lows.
The company produced 134,035oz of gold in the March quarter, up 26% with all in sustaining costs of US$1084/oz.
That generated record quarterly revenue of $286 million and record quarterly EBITDA of $158m, including record quarterly gold production from the Haile mine in the USA of 60,249oz.
Importantly Didipio hit full underground mining rates in March, producing 29,446oz of gold and 3510t of copper in the quarter at sector leading AISC of only $40/oz sold.
Many companies, particularly those operating in Western Australia, spent this week posting guidance downgrades or outright withdrawals after their operations were hit with Covid cases, supply chain issues, labour shortages and inflation.
OGC bucked that trend by reaffirming its consolidated guidance of 445,000-495,000oz of gold and 11,000-13,000t copper at AISC of US$1275-1375/oz and cash costs of US$675-775/oz.
The sole disappointment was the Waihi mine in New Zealand, where poor grade reconciliation at the Martha underground mine sent OGC back to the drill rigs as it delivered just 6752oz at US$2950/oz.
“OceanaGold has started the year strongly with the first quarter safely delivering record quarterly revenue and EBITDA and significant Free Cash Flow,” new OceanaGold president and CEO Gerard Bond said.
“This strong Free Cash Flow generation allowed us to achieve a 29% reduction in net debt and reduce our leverage ratio to 0.40 times.
“Our stronger balance sheet puts us in a solid financial position from which we can invest in attractive growth projects to create value for our shareholders.”
He told analysts today runaway inflation that was driving up supply costs, labour and diesel prices could be good for gold prices.
“Overall we are globally in every industry entering an inflationary environment,” Bond said.
“The flipside is that typically tends to be good for the gold price, so arguably on the bottom line impact we have a good hedge.”
Gold was trading for US$1,906.49/oz, in and around levels seen since the Russian invasion of Ukraine began, heightening global uncertainty and sending investors flocking to safe haven assets.
RBC mining analyst Alex Barkley referred to the result as a “flying start” to 2022, saying production and costs were 18% and 22% improvements on the bank’s estimates.
“The 536kozpa gold rate puts OGC well on track for CY22 guidance of 445-495koz (RBCe 469koz),” Barkley said.
“Didipio continues to perform strongly in the early quarters of its restart, and recovery improvements at Haile both project as positives beyond Q2.
“Grade reconciliation issues continue to affect Waihi, however, the smaller scale of the site somewhat limits impact to OGC.”