Copper production from the Philippines may be the saving grace for East Otago-based OceanaGold, as global spot gold prices languish and increasing gold production costs keep gouging into miners' profit margins.
It appears that when Oceana reports its 2013 calendar full-year results in mid-February, it will likely be posting some of the sector's lowest cash costs per ounce to produce gold, meaning retention of a larger profit margin than many of its competitors.
Oceana, being New Zealand's largest gold producer, has been cushioned from the worst of rising costs, being able to offset gold production costs with copper sales from its Philippine gold-copper operations, but it has not been immune from falling gold prices and rising costs.
It is still chasing US$100 million ($121 million) in cost efficiencies and savings from its operations, mainly in New Zealand, putting several hundred jobs under a cloud.
There has been an unspecified number of redundancies, potentially about 60 or 70, at Macraes in East Otago.
Furthermore, its share price was the worst performing on the New Zealand Stock Exchange, at one point 70 per cent down at $1.34, but for past weeks has been trading at about $1.70 to $1.80, closing last at $1.71.
Production costs for the major producers around the world have been reported at US$1250 to US$1300, although they are clawing back savings, such as using higher grade ore, to get costs down to US$1000 to US$1100.
Oceana's last market update in November forecast its average cost per ounce for 2013 would come in between US$550 and US$650, which includes copper credits from its Didipio mine.
Oceana has expectations it would end the year on a flourish processing higher ore grades - delivering between 285,000-325,000 ounces in total.
Craigs Investment Partners broker Peter McIntyre said it had been a "roller-coaster year" for Oceana's share price, which has mirrored the volatility and softness in the spot gold price throughout 2013. "They have been lucky with Didipio, having those copper offsets to cushion the [gold] production costs," he said.
He said management had been quick to make decisions in deferring work on the West Coast, at its Macraes mine in East Otago and also exploration which ultimately upgraded resource estimates and mine life.
"Their operating cash costs show Oceana has been one of the best operators in the southern hemisphere," McIntyre said. "For Oceana, it's all about extending the mine life of the assets they have, and they have been nimble at that," he said.
In a surprise announcement in October, Oceana said it had bought a Central American gold and silver exploration company, for $12.1 million in a cashless share transaction in El Salvador.
McIntyre said it was a "strategic acquisition", in that Oceana had a project to look into and the purchase would also widen its portfolio.
Gold mines in general are expected to have a tough 12 months ahead, unless there was a global economic calamity, which would likely see a surge in gold buying, McIntyre said.
However, Oceana was better placed than most and if its market capitalisation stayed above the present more than $600 million, it would provide opportunities to seek funding and be more of an attraction for investors, he said.
Forsyth Barr broker Andrew Rooney said with gold prices at record lows, in New Zealand dollar terms for the past four years at least, Oceana's share price decline was not surprising.
"Even with the work undertaken to date to improve efficiencies, the outlook for the company is going to be dictated predominantly by the price of gold in 2014," Rooney said.
The quality and quantity of gold produced from its mines are of a high standard and the benefits of its cost reduction initiatives are starting to flow through.
"If the price of gold does increase through demand and a correction in the overselling that has occurred, there will be obvious benefits for Oceana in 2014," Rooney said.
Its acquisition of Pacific Rim in El Salvador could ultimately add silver production to Oceana's portfolio as well.
"This will be some time away though, as there are still regulatory hurdles to be overcome before this," Rooney said.
He said the copper production from Didipio had also assisted Oceana to supplement its gold output.
"Domestically, Oceana is signifying a positive intent.
"The recent news of the consent award for an extension to its existing Macraes operation being a positive for the local region," Rooney said.
Early last month, Oceana was granted 17 consents by a joint hearings panel made up of the Otago Regional Council, Waitaki District Council and Dunedin City Council.
The 35-year consents are for the proposed Coronation pit and waste rock stack, to the north of the mine on the Taieri Ridge, and could extend the overall Macraes mine life by at least a year, to 2021.
The new pit could take about three years to develop, with any start date dependent on future gold prices.