OceanaGold expands exploration target at Martha in New Zealand

Since picking up the Waihi property in New Zealand from Newmont for US$100 million four years ago, OceanaGold (TSX: OGC) has extended the mine life of its Correnso underground gold mine by three years — generating US$200 million of free cash flow.

It has also fully permitted an underground mine 1 to 2 km away, which it hopes to put into production by 2021. The underground mine sits below a past-producing, open-pit mine called Martha, which was closed in 2015 due to a pit wall failure.

OceanaGold started chasing veins below the 200-metre pit bottom in 2017, and since then has defined gold mineralization to a depth of 550 metres, where it remains open.

“We have been drilling there pretty extensively for about two and a half years and have been getting some pretty good widths, and very high grade,” Sam Pazuki, the company’s head of investor relations, says in an interview. “These veins we’re drilling are larger than we expected, so it’s quite exciting stuff.”

Some of the major veins in the pit — Martha, Empire and Royal — have been mined for 30 years, but extend at depth. “We thought there might be a point where they started pinching, but as we have gone deeper, we find that these veins are still continuing at depth and are getting wider, as well.”

A drill targets gold beside a rugby field at OceanaGold’s Waihi gold project on New Zealand’s North Island. Credit: OceanaGold.

Because it’s a low-sulphidation epithermal system, “the geology is favourable for additional discoveries,” Pazuki adds, and OceanaGold’s geologists are finding more veins. “The other veins we’re hitting are smaller — they’re not as wide — but they are high grade, as well, so we’re making new discoveries.”

OceanaGold found the Rex vein a year and a half ago, and the Dreadnought vein 10 months ago.

Recent drill results include 38 metres grading 8.1 grams gold per tonne and 10.1 grams silver per tonne on the Edward–Martha veins; 12 metres of 13.7 grams gold and 32.9 grams silver on the Empire vein; 4 metres of 31.7 grams gold and 100.7 grams silver on the Rex vein; and 5 metres of 19.2 grams gold on the Dreadnought vein.

“When we first started drilling Martha underground we didn’t have any ounces on the books, but we had historic data because a lot of the area had been mined in the 1880s,” Pazuki says. “We even opened up some old stopes and found they were backfilled with 5- to 10-gram material, which back then was considered low grade.”

In March, OceanaGold updated its August 2018 resource estimate. The new estimate shows that indicated resources have grown 136% to 331,000 contained oz. gold within 2.13 million tonnes grading 4.84 grams gold per tonne, while inferred resources have risen 97% to 667,000 contained oz. gold, within 4.52 million tonnes grading 4.59 grams gold per tonne.

Underground at OceanaGold’s Waihi project in New Zealand. Credit: OceanaGold.

Last month Oceanagold increased its exploration target from its previous 5 million to 8 million tonnes grading between 4 and 6 grams gold per tonne to 8 million to 10 million tonnes at the same grade. The new exploration target is based on the company’s assessment of surface and underground drill data it has collected, as well as historic and archived geological and mine data. The company plans to drill test its revised exploration target during 2020 and 2021, and identify and define mineralization along sections of the Martha, Royal, Empire, Edward and Rex veins, and associated structures.

So far it has drilled 77,500 metres, or 60% of its planned drill program at Martha, and is running seven underground rigs and two surface rigs. The underground rigs are drilling along two exploration drives that are 120 metres apart, and the company plans to provide resource updates over the next 12 months.

It is also starting work on a preliminary economic assessment (PEA) that will look at the Martha underground project and the nearby WKP prospect. In February the company issued a resource estimate on WKP of 0.41 million tonnes grading 18 grams gold per tonne and 22.7 grams per tonne silver for 234,000 contained oz. gold and 296,000 oz. silver on the East Graben vein. Inferred resources on the East Graben and T-Stream veins add 1.05 million tonnes averaging 11.9 grams gold and 16.8 grams silver for 401,000 oz. gold and 568,000 oz. silver.

Pazuki notes that analysts value Waihi at US$150 million, but assign “virtually zero value” to WKP.

“They’re giving us little value, because it’s early days,” he says. “They’re taking a very conservative approach … but that represents the opportunity for investors.”

The company’s flagship asset is its Didipio mine in the Philippines. The mine has been shut down while the company awaits renewal of its mining lease. In the meantime, there is US$50 million of concentrate stockpiled at the site.

The tailings storage facility at OceanaGold’s Didipio gold mine in the Philippines. Credit: OceanaGold.

Pazuki says OceanaGold is confident the mining licence will be renewed and that the process “is going in the right direction — we’re getting positive support from different levels of government, from the regulator, and very strong support from the local community.”

Over the last year, OceanaGold’s shares have traded in a range of $2.85 to $5.01 per share, and at press time were at $3.54 apiece. The company has 622 million common shares outstanding for a $2.2-billion market capitalization.

Daniel Morgan of UBS in Australia upgraded OceanaGold to a “buy” rating on Sept. 19. “The share price has declined about 23% in 2019, year-to-date, underperforming the gold price, which has rallied 16% year-to-date, and the S&P/ASX 200 Gold Index, which has rallied 40%,” the mining analyst says in a research note.

“This is due … to the regulatory issues at Didipio, and to a lesser extent, production issues at Haile … We assess that the share price does not include value for Didipio, so resolution would be a materially positive catalyst. Sequential production and cost improvement over the coming quarters at Haile should also, in our view, be positive catalysts.”

The first two months of the year at its Haile mine in South Carolina, U.S., were challenging, with low production, productivity and high costs. For much of the first quarter, the mine remained saturated after heavy rainfall in the fourth quarter of 2018 and the start of 2019. Access to higher grades was restricted and pre-stripping the saprolitic clay material was challenging. But the operation improved in the second quarter, and, despite accelerated pre-stripping operations, quarter-on-quarter production increased 45%, unit cash costs decreased 39% and all-in sustaining costs decreased 23%.

The company reported consolidated production for the first half of the year from Haile, Waihi, Didipio and its Macraes operation in New Zealand of 254,972 oz. gold and 7,871 tonnes copper.