OceanaGold looks to extend the mine life of Macraes

OceanaGold (TSX: OGC; ASX: OGC) has received permits for three deposits at its Macraes gold mine, about 60 km north of Dunedin in the South Island of New Zealand, that will allow it to extend the life of the mine from 2021 to 2028. 

The permits will enable the development of the new Golden Point Underground Mine (GPUG), extend the Deepdell North Stage III open-pit deposit, and expand mineralisation at Frasers West open-pit. 

“The new GPUG will initially supplement and then eventually replace the existing underground operation at Frasers,” Sam Pazuki, the company’s vice president of strategy and corporate development, said in an interview. “We expect the first production at GPUG to start around this time next year.” 

The Frasers underground mine, he continued, went into production in 2008 and originally had a mine life of five years but still has another two to three years of mine life to go.  

Services and earthworks around the GPUG portal are underway, and the first cut of the portal is expected before the end of the year, Pazuki said. Pre-stripping of the Deepdell open-pit is underway, as is the Fraser West pit expansion, with mining of both expected to start in the next couple of months, he noted. 

The projects are collectively forecast to produce 1.1 million oz. of gold over the mine’s eight-year life. The mine is forecast to produce an average 150,000-170,000 oz. of gold per year at all-in sustaining costs (AISCs) of about US$1,000 per ounce, with 75% of the production from the open-pit mines and about 25% from the underground mine. 

A mineral resource estimate for Macraes in June 2020 outlined measured and indicated resources of 122 million tonnes grading 0.91 gram gold per tonne for 3.6 million oz. contained gold. Inferred resources add 4.2 million tonnes grading 0.74 gram gold for 1 million oz. of gold. 

“Because Macraes is not blessed with high-grades, we have to be as efficient as possible when mining,” Pazuki said. “Currently, we are mining ore at around US$1.30 per tonne, but previously it’s been as low as US$1 per tonne, making it one of the world’s lowest-cost gold mines.”  

What also sets OceanaGold apart from other “non-major” gold companies, he said, is the company’s use of an in-house autoclave at the mine’s processing plant, which has been in operation since 1999, allowing it to process ore at about US$7 per tonne. This figure, he noted, is nearly half the cost of comparable processing plants.   

In a research note, BMO Capital Market’s precious metals analyst, Brian Quast, forecasts a 10-year mine life for Macraes with the open-pit resources becoming depleted in 2028 and underground resources becoming depleted in 2030. The analyst estimated a net present value of US$743 million, at a 5% discount rate, for the mine. 

In other news, the company has been notified that the Philippine government is moving forward to finalize the renewal of an agreement governing the company’s Didipio gold-copper underground mine in the north of Luzon Island, 270 km northeast of Manila. 

The company announced in a press release on Dec. 7 that President Rodrigo Duterte had instructed the Philippines’ Department of Environment and Natural Resources to work with OceanaGold and the Department of Finance on a new Financial for Technical Assistance Agreement (FTAA). 

OceanaGold kicked off the renewal of the 25-year permit for the mine in 2018. After it expired in June 2019, the company kept Didipio operating under a temporary licence, but a blockade backed by the local government forced the mining company to suspend operations a few weeks later.

The FTAA’s renewal has been slowed down by the Covid-19 pandemic, claims that Didipio had been operating outside the Indigenous Peoples’ Rights Act, and the Bugkalot tribe had been seeking to expand its domain over parts of the FTAA area. 

The company was recently granted a “certification of non-overlap,” which states the FTAA area is outside the ancestral domain of local indigenous communities. It plans to restart the operation as soon as it gets the go-ahead. 

Farooq Hamed of Raymond James, described the news as “a clear positive” and said he believes “positive engagement and eventual sign-off of the FTAA renewal by the Office of the President is the final step in allowing Didipio to re-start given the renewal was previously endorsed by all other relevant government ministries including the Department of Environment and Natural Resources (DENR), Mining and Geosciences Bureau (MGB) and the Department of Finance (DofF).” 

Hamed also pointed to the support for Didipio from local communities. “OceanaGold was recently granted a Certificate of Non-Overlap which states that the FTAA area is outside the ancestral domain of the Indigenous Cultural Communities,” Hamed commented in his research note to clients. “The company has strong endorsement of the residents in the local communities around the Didipio mine including the Indigenous Cultural Communities and Indigenous Peoples.” 

Brian Quast of BMO Capital Markets commented in a research note that Didipio makes up 12% of the company’s operational net present value and “generates significant free cash flow for the company when in operation.” 

The analyst also noted that news of the potential restart will likely assist OceanaGold in its discussions with lenders. 

“The company has overall $200 million credit facilities due December 31, 2021,” he wrote. “The facilities are with a multi-national group of banks. A restart of Didipio prior to the maturity of these debt facilities should be useful in any refinancing discussions.” 

Quast currently models a restart in mid-2022. “The company is not yet giving any timelines on a restart, and given the impact of the Covid-19 pandemic and the amount of bureaucracy still required, we are not yet prepared to model an earlier restart of Didipio.” 

OceanaGold is also moving forward with its environmental management strategy, releasing a position statement on climate change in mid-November, which included an emissions reduction goal to achieve net-zero emissions from its operations in 2050. 

“We’ve been mining in New Zealand for over 30 years, and we’re very proud of our track record on environmental and social issues in a country that prides itself on being one of the greenest in the world,” Pazuki said. “We have a demonstrably strong ESG [environmental and social governance] performance and are always looking for new opportunities to improve. The commitment to carbon-neutrality by 2050 is a key part of our commitment to minimizing our environmental impact.” 

Over the past several years, he continued, ESG has become increasingly important to investors in the mining industry. So, he added, the company is continually seeking to better align its approach with its investors’ and stakeholders’ needs.   

The goal of OceanaGold’s environmental management strategy, Pazuki said, is to mitigate the risks associated with climate change, establish measures and targets to improve the efficiency of its energy use, and to minimize its greenhouse gas (GHG) emission intensity. 

To support this goal, the company plans to establish milestone intensity targets (GHG emissions per oz. of gold produced) by 2022. The targets, he said, would be achieved by addressing four key strategic areas: improved energy efficiency and energy reduction; decarbonisation of electrical energy supply; decarbonisation of the fuel used for mobile equipment fuel; and carbon sequestration.  

The company plans to establish a climate change Technical Coordinating Committee to identify opportunities to reduce its GHG emission intensity and identify risks, opportunities, priorities, and costs across its operations. 

It will also undertake climate change management and reporting to meet the requirements of the Task Force on Climate-related Financial Disclosures (TCFD). Created in 2017, the TCFD comprises 31 members across the G20 group of countries representing both preparers and users of financial data and aims to improve and increase climate-related financial information reporting.  

To support this goal, the company plans to establish milestone intensity targets (GHG emissions per oz. of gold produced) by 2022. The targets, he said, would be achieved by addressing four key strategic areas: improved energy efficiency and energy reduction; decarbonisation of electrical energy supply; decarbonisation of the fuel used for mobile equipment fuel; and carbon sequestration. 

The company plans to establish a climate change Technical Coordinating Committee to identify opportunities to reduce its GHG emission intensity and identify risks, opportunities, priorities, and costs across its operations.

It will also undertake climate change management and reporting to meet the requirements of the Task Force on Climate-related Financial Disclosures (TCFD). Created in 2017, the TCFD comprises 31 members across the G20 group of countries representing both preparers and users of financial data and aims to improve and increase climate-related financial information reporting.