100 jobs cut at Otago gold mine

Truck heads underground at OceanaGold Heritage and Art Park at Macraes Flat, East Otago.

OceanaGold plans to scale back its operations and is expected to axe more than 100 jobs at the Macraes goldfield in Otago in response to a falling gold price, and has flagged smaller production and an impairment charge in 2014.

It is understood 106 people will lose their jobs, leaving just 47 to work the open-cast mine, the Otago Daily Times reports.

The mining group's board has signed off on a plan to cut costs at Macraes, which has been operating for 23 years, to reduce gold output and cut headcount over the next two years, it said in a statement. That plan will see a smaller cutback at the Frasers 6 open pit, scheduled to begin in the second half of the year, and will likely see the asset reviewed for an impairment charge in the end of year results.

OceanaGold has been scaling back its New Zealand gold mining production, including the mothballing of its Reefton mine from the middle of next year, in the face of falling gold prices. The price of gold was recently at US$1,230.71 an ounce, down 27 per cent from the start of 2013. At the current price the Macraes open pit has a mine life until the end of 2017 and the Frasers underground mine has a life until the middle of next year.

"The continuing lower gold price has necessitated the need to make changes to our business to ensure a sustainable operation at Macraes," managing director Mick Wilkes said. "Unfortunately these changes will also have an impact on some of our workforce and contractors, who I wish to thank and acknowledge for their contribution to OceanaGold."

The company expects total gold production of between 275,000 and 305,000 ounces in the 2014 year, down from between 285,000 and 325,000 in the current year, and copper production of between 21,000 and 24,000 tonnes, up from 18,000 to 20,000 tonnes.

OceanaGold flagged total company cash costs of between US$400 and US$450 an ounce for 2014, compared to US$550 and US$650 an ounce in 2013, and all-in sustaining costs of US$750 to US$850 an ounce, down from US$900 and US$1,000 an ounce in the current year.

Wilkes said the company anticipates cutting its debt from increased production at its Didipio mine and its cost cutting measures in New Zealand.

"We will strive to look for further efficiencies and initiatives such as advancing the power grid connection in the Philippines," he said.

In October, the company said it would buy the 80 per cent of Pacific Rim Mining Corp it didn't already own for C$10.2 million to gain access to Pacific Rim's El Dorado gold-silver deposit in El Salvador.

OceanaGold forecasts total capital expenditure of between US$80 million and US$100 million in 2014, and exploration expenditure of between US$5 million and US$10 million in the Philippines and El Salvador.

The company also announced extra hedging for 208,000 ounces to partially cover production at the Otago site, ensuring it will get at least NZ$1,500 per ounce and no more than NZ$1600 an ounce. The programme runs from January this year though to December 2015.

Dunedin Mayor Dave Cull told the ODT it was "a body blow to some of our smaller rural communities, although I completely understand why Oceana Gold needed to make the decision".

"Gold extraction is subject to forces beyond our control.

"But, this will have a major impact on employment in some communities and we're very conscious of the need to ameliorate the effects and help keep those communities sustainable," he said.

The number of job losses was not given by the company, but Amalgamated Workers Union New Zealand secretary Calvin Fisher said more than 100 jobs were likely to be lost from the open-pit crews and mine technicians.

The triple-listed shares fell 3.3 per cent to $1.75 on the NZX yesterday, and slumped by 50 per cent last year.