OceanaGold posts strong half year production and exploration result
/NOT FOR DISSEMINATION OR DISTRIBUTION IN THE UNITED STATES OR TO US PERSONS AND NOT FOR DISTRIBUTION TO US NEWSWIRE SERVICE/
MELBOURNE, Australia, July 29 /CNW/ - OceanaGold Corporation (ASX: OGC, TSX: OGC, NZX: OGC) (the "Company") increased Second Quarter gold production to 67,541 ounces, bringing total Half Year production to 132,832 ounces.
In its Second Quarter and Half Year 2010 Results released today, the Company announced a 226% increase to its quarter on quarter cash operating margin to US$627 per ounce. This significant increase is due to closing out of the gold hedgebook in March 2010 resulting in the Company now selling 100% of its gold production into the spot market.
Other highlights of the Second Quarter and Half Year Results include:
- Sold 67,347 ounces of gold during the quarter, an increase of 3.5% on
First Quarter 2010, bringing the half year gold sales total to
132,388 ounces.
- Posted EBITDA (earnings before interest, taxes, depreciation and
amortisation and excluding unrealised gains/losses on undesignated
hedges) of $39.2 million for the Second Quarter.
- Achieved significant improvement on process recoveries to 84% across
the New Zealand operations compared with 80.4% for the same period
last year.
- Announced down-dip extensions to gold mineralisation at the General
Gordon, Empress and Souvenir open pits at the Reefton mine
(New Zealand) in April.
- Announced the discovery from a surface drilling program down-dip from
Panel 2 at the Frasers underground mine (New Zealand) in May.
- Continued to evaluate various strategic and funding options for the
Company's Didipio Gold and Copper project in the Philippines, with
good progress made during the quarter. Mine design optimisation
studies are nearing the final stages of completion.
OceanaGold ranks behind Newcrest and Lihir as the third largest fully unhedged Australasian-based gold producer. The Company expects to produce 270,000 - 290,000 ounces of gold in FY2010.
During the quarter, OceanaGold's exploration program continued to deliver promising results at both the Reefton and Macraes goldfields on the South Island of New Zealand. Drill results from Reefton announced in April outlined the continuation of mineralization below the current planned pit floors leading to an expectation that the pit shells are likely to be expanded. A follow-up drill program commenced in April. At the Frasers underground mine, a new discovery of mineralization down-dip from Panel 2 was announced in May. This was followed up with results from a second program earlier this month that demonstrated good continuity of mineralization between Panel 2 and the new discovery.
OceanaGold CEO, Paul Bibby, said the Company's Second Quarter and Half Year Results demonstrated a solid outcome with the expectation of further production increases in the second half of the year.
Mr. Bibby commented, "This was the first quarter in the Company's history where OceanaGold has been hedge free and 100% exposed to the spot market. This has significantly increased our ability to strengthen the balance sheet and has provided the flexibility to direct investment back into the business as demonstrated by the recent announcement to increase the exploration budget at Reefton."
"With forecast increased gold production in Quarters Three and Four 2010, OceanaGold is on track to further strengthen the business and unlock value within the Company."
About OceanaGold
OceanaGold Corporation is a significant Pacific Rim gold producer with projects located on the South Island of New Zealand and in the Philippines. The Company's assets encompass New Zealand's largest gold mining operation at the Macraes goldfield in Otago which is made up of the Macraes open pit and the Frasers Underground mines. Additionally on the west coast of the South Island, the Company operates the Reefton open-pit mine. OceanaGold is 100% unhedged and produces between 270,000 - 300,000 ounces of gold per annum from the New Zealand operations. The Company also owns the Didipio Gold-Copper Project in northern Luzon, Philippines.
OceanaGold is listed on the Toronto, Australian and New Zealand stock exchanges under the symbol OGC.
Cautionary Statement
Statements in this release may be forward-looking statements or forward-looking information within the meaning of applicable securities laws. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as "expects" or "does not expect", "is expected", "anticipates" or "does not anticipate", "plans", "estimates" or "intends", or stating that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements. Forward-looking statements are subject to a variety of risks and uncertainties which could cause actual events or results to differ from those reflected in the forward-looking statements including, among others, the accuracy of mineral reserve and resource estimates and related assumptions, inherent operating risks and those risk factors identified in the Company's Annual Information Form prepared and filed with securities regulators in respect of its most recently completed financial year. There are no assurances the Company can fulfil such forward-looking statements and, subject to applicable securities laws, the Company undertakes no obligation to update such statements. Such forward-looking statements are only predictions based on current information available to management as of the date that such predictions are made; actual events or results may differ materially as a result of risks facing the Company, some of which are beyond the Company's control. Accordingly, readers should not place undue reliance on forward-looking statements. It is also noted that mineral resources that are not mineral reserves do not have demonstrated economic viability.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Management Discussion & Analysis contains "forward-looking statements and information" within the meaning of applicable securities laws which may include, but is not limited to, statements with respect to the future financial and operating performance of the Company, its subsidiaries and affiliated companies, its mining projects, the future price of gold, the settlement and cancellation of the Company's hedging facilities, the early redemption of the Company's convertible notes, the estimation of mineral reserves and mineral resources, the realisation of mineral reserve and resource estimates, costs of production, estimates of initial capital, sustaining capital, operating and exploration expenditures, costs and timing of the development of new deposits, costs and timing of the development of new mines, costs and timing of future exploration, requirements for additional capital, governmental regulation of mining operations and exploration operations, timing and receipt of approvals, consents and permits under applicable mineral legislation, environmental risks, title disputes or claims, limitations of insurance coverage and the timing and possible outcome of pending litigation and regulatory matters. Often, but not always, forward-looking statements and information can be identified by the use of words such as "plans", "expects", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "targets", "aims", "anticipates" or "believes" or variations (including negative variations) of such words and phrases, or may be identified by statements to the effect that certain actions, events or results "may", "could", "would", "should", "might" or "will" be taken, occur or be achieved. Forward-looking statements and information involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company and/or its subsidiaries and/or its affiliated companies to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others, future prices of gold; general business, economic, competitive, political and social uncertainties; the actual results of current production, development and/or exploration activities; conclusions of economic evaluations and studies; fluctuations in the value of the United States dollar relative to the Canadian dollar, the Australian dollar, the Philippines Peso or the New Zealand dollar; changes in project parameters as plans continue to be refined; possible variations of ore grade or recovery rates; failure of plant, equipment or processes to operate as anticipated; accidents, labour disputes and other risks of the mining industry; political instability or insurrection or war; labour force availability and turnover; delays in obtaining financing or governmental approvals or in the completion of development or construction activities or in the commencement of operations; as well as those factors discussed in the section entitled "Risk Factors" contained in the Company's Annual Information Form in respect of its fiscal year-ended December 31, 2009, which is available on SEDAR at www.sedar.com under the Company's name. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements and information, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. Also, many of the factors are outside or beyond the control of the Company, its officers, employees, agents or associates. Forward-looking statements and information contained herein are made as of the date of this Management Discussion & Analysis and, subject to applicable securities laws, the Company disclaims any obligation to update any forward-looking statements and information, whether as a result of new information, future events or results or otherwise. There can be no assurance that forward-looking statements and information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements and information due to the inherent uncertainty therein. All forward-looking statements and information made herein are qualified by this cautionary statement.
This Management Discussion & Analysis may use the terms "Measured", "Indicated" and "Inferred" Resources. U.S. investors are advised that while such terms are recognized and required by Canadian regulations, the Securities and Exchange Commission does not recognize them. "Inferred Resources" have a great amount of uncertainty as to their existence and as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Resources will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Resources may not form the basis of feasibility or other economic studies. U.S. investors are cautioned not to assume that all or any part of Measured or Indicated Resources will ever be converted into reserves. U.S. investors are also cautioned not to assume that all or any part of an Inferred Resource exists, or is economically or legally mineable.
This document does not constitute an offer of securities for sale in the United States or to any person that is, or is acting for the account or benefit of, any U.S. person (as defined in Regulation S under the United States Securities Act of 1933, as amended (the "Securities Act")) ("U.S. Person"), or in any other jurisdiction in which such an offer would be illegal. The securities have not been and will not be registered under the Securities Act, and may not be offered or sold in the United States or to, or for the account or benefit of, U.S. Persons unless the securities are registered under the Securities Act or an exemption from the registration requirements of the Securities Act is available. The securities may be offered and sold solely in "offshore transactions" in reliance on Regulation S under the Securities Act.
Management's Discussion and Analysis of Financial Condition and Results of Operations for the Quarter & Half Year Ended June 30, 2010
HIGHLIGHTS
- Sold 67,347 ounces of gold during the quarter, an increase of 3.5% on
Q1 2010 bringing the half year total to 132,388 ounces
- Margins increased significantly to $627 per ounce as a result of the
closeout of the hedge book, a 226% increase on Q1 2010
- EBITDA (earnings before interest, taxes, depreciation and
amortization and excluding unrealized gains/losses on undesignated
hedges) was $39.2 million for the second quarter*
- Achieved further improvement on process recoveries to 84% for the
quarter across the New Zealand operations compared to 80.4% for the
same period last year
- Announced down-dip extensions to gold mineralization at the
General Gordon, Empress and Souvenir open pits at Reefton in April
- Announced a further discovery from a surface drilling program
down-dip from Panel 2 at the Frasers underground mine in May
All statistics are compared to the corresponding 2009 period unless
otherwise stated.
OceanaGold has adopted USD as its presentation currency and all numbers
in this document are expressed in USD unless otherwise stated.
* EBITDA is a non GAAP measure. Refer to page 20 for explanation of
non GAAP measures.
OVERVIEW
Results from Operations
OceanaGold recorded quarterly gold sales for Q2 2010 of 67,347 ounces at cash costs of $564 per ounce. Sales for the half year totaled 132,388 ounces at an average cash cost of $557 per ounce.
As expected, sales during the quarter exceeded the previous period and were up 3.5% by volume. An extreme rainfall event at the Macraes goldfield in May did have a negative affect when 50% of the average annual rainfall was recorded over a 2 1/2 day period. This resulted in equipment utilizations at both the Macraes open cut and Frasers underground being well below plan in late May and the start of June and consequently a higher percentage of lower grade stockpiles were processed through the processing plant versus plan. Rock movements returned to normalized levels in June as weather conditions improved.
Cash costs for the quarter of $564/oz were slightly higher predominantly due to an increase in the diesel price and equipment maintenance costs.
It is expected that H2 2010 gold production will exceed H1 2010 and should favorably impact the unit cash costs reported during the second half of the year. Production guidance of 270,000 - 290,000 ounces of gold at cash costs of US$455 - $495 per ounce is maintained.
Cash operating margins have increased substantially with the removal of the hedgebook in March 2010. Margins have increased to $627 per ounce compared to $192 per ounce in Q1. Following the close out of the hedgebook, the gold price in New Zealand Dollars has traded higher throughout the quarter as both the US$ gold price and the exchange rate were favorable.
EBITDA (earnings before interest, taxes, depreciation and amortization and excluding unrealized gains/losses on undesignated hedges) was up sharply when compared to Q1 to $39.2 million. Again, this was on account of 100% of production being sold into the spot market.
Cash flow from operating activities was a net outflow of $21.2 million and included a $56.7 payment in early April for settlement of the remaining outstanding hedge contracts.
Didipio Gold - Copper Project
The Didipio Gold and Copper project in Luzon province, Philippines remains under care and maintenance with a reduced workforce at the project site.
The Company is currently evaluating various strategic and funding options for the project. This is currently a key priority for the management team with good progress being made during the quarter.
OceanaGold continues to maintain a robust community relations and environmental program at the project site during this period. Local community medical care programs and infrastructure upgrades were two key areas of focus during the quarter.
- Table 1 -
Key Financial and Operating Statistics
-------------------------------------------------------------------------
Q2 Q1 Q2 Half Year Half Year
Financial Jun 30 Mar 31 Jun 30 Jun 30 Jun 30
Statistics 2010 2010 2009 2010 2009
-------------------------------------------------------------------------
Gold Sales
(Ounces) 67,347 65,041 75,319 132,388 156,412
USD USD USD USD USD
--- --- --- --- ---
Average Price
Received ($
per ounce) 1,191 743 730 971 705
Cash Operating
Cost ($ per
ounce) 564 551 423 557 349
Cash Operating
Margin ($ per
ounce) 627 192 307 414 356
Non-Cash Cost
($ per ounce) 277 271 203 274 183
Total Operating
Cost ($ per
ounce) 841 822 626 831 532
Total Cash
Operating Cost
($ per tonne
processed) 21.86 21.89 18.59 21.88 15.72
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Combined Q2 Q1 Q2 Half Year Half Year
Operating Jun 30 Mar 31 Jun 30 Jun 30 Jun 30
Statistics 2010 2010 2009 2010 2009
-------------------------------------------------------------------------
Gold produced
(ounces) 67,541 65,291 74,240 132,832 158,277
Total Ore
Mined
(tonnes) 1,872,020 2,072,090 1,026,082 3,944,110 2,514,943
Ore Mined
grade
(grams/tonne) 1.38 1.46 2.32 1.42 2.33
Total Waste
Mined (tonnes)
- incl
pre-strip 13,405,239 14,595,961 15,059,680 28,001,200 29,410,222
Mill Feed
(dry milled
tonnes) 1,737,669 1,635,658 1,707,220 3,373,327 3,450,250
Mill Feed
Grade
(grams/tonne) 1.41 1.54 1.65 1.47 1.78
Recovery (%) 84.0% 82.0% 80.4% 83.0% 81.0%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Q2 Q1 Q2 Half Year Half Year
Combined Jun 30 Mar 31 Jun 30 Jun 30 Jun 30
Financial 2010 2010 2009 2010 2009
Results $'000 $'000 $'000 $'000 $'000
-------------------------------------------------------------------------
EBITDA
(excluding
unrealized
gain/(loss)
on hedges) 39,169 8,479 22,484 47,648 53,516
-------------------------------------------------------------------------
Earnings/
(loss)
after income
tax and
before
undesignated
gain/(loss)
on hedges
(net of tax) 7,968 (9,547) 5,397 (1,579) 16,036
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Reported
EBITDA
(including
unrealized
gain/(loss)
on hedges) 39,155 24,709 72,081 63,864 100,848
-------------------------------------------------------------------------
Reported
earnings/
(loss) after
income tax
(including
unrealized
gain/(loss)
on hedges) 7,958 1,814 40,114 9,772 49,168
-------------------------------------------------------------------------
PRODUCTION
Gold production for the second quarter of 2010 was 67,541 ounces, an increase on Q1 as expected. Total production for the half year was 132,832 ounces.
The total combined operating cash costs for the quarter were $564/oz which was slightly higher than the previous quarter and reflects some slight increases to the price of diesel and costs associated with fleet maintenance and contract hires.
OPERATIONS
Macraes Goldfield (New Zealand)
The Macraes operations (open-pit and underground) incurred one lost time injury (LTI) during the quarter compared to one during the same period last year. During the quarter, the Positive Attitude Safety System (PASS) was fully implemented and this new system has been positively received across the workforce.
Production from the Macraes Goldfield for the quarter was 41,504 gold ounces, 6% lower than the previous quarter. The lower production was largely the result of the impact of a heavy rainfall event during the last week of May. This resulted in some flooding within the lower benches of the open pit and equipment utilizations being down on plan. Although weather delays are a normal part of operations in New Zealand, this significant event resulted in the open-pit mining at Macraes being out of action four days longer than the allowance in the plan. Similarly, the underground operations ceased for more than a week while the excess water was removed and ground conditions checked. While operations returned to normal in June, the unplanned down-time at both operations resulted in mining rates being lower than plan and therefore more lower grade stockpiles were utilized through the processing plant.
At the Frasers underground mine, mining took place primarily in the 2D and 2F panels. Total ore mined for the quarter was lower than plan at 212,000 tonnes due mainly to the heavy rainfall event in late May. Underground operations are now operating in-line with plan. Additionally, as at July 1st, the Company transitioned to owner-mining taking over from Byrnecut Mining who had been the contractor since the underground development commenced in 2006. A seamless transition was achieved and the Company expects to extract additional cost savings and efficiencies.
Mill feed through the processing plant was 1.34 million tonnes compared to 1.29 million tonnes in the previous quarter. An improvement in mill throughput resulted from improved ore fragmentation through tighter blast patterns in the open pit reducing the residence time for ore in the mills.
Process plant recoveries at Macraes continued to improve over the previous period at 83.9% for the quarter compared to 81.4% for Q1. Improvements made in late 2009 to the cyclone classification improved both efficiency and capacity and continued to benefit flotation performance. Various improvements have been also been made to the Carbon In Leach (CIL) circuit during the quarter including targeting increased oxidation levels through the autoclave as well as greater controls in the gold elution process.
Reefton Goldfield (New Zealand)
One LTI occurred in the second quarter compared to none during the same period last year.
Material movements were slightly down on the previous quarter as expected due to winter operating conditions. During the winter, more allowance is made for wetter conditions which results in slightly lower equipment utilizations in the open pit compared to summer. Ore delivered to the ROM pad was higher than Q1 however, contributing to another strong quarter at the processing plant.
A positive result at the Reefton process plant was achieved with 401,000 tonnes processed through the mill. This was a 16% increase on the previous quarter's performance. The increase in mill throughput is primarily the result of optimization of the milling circuit and specifically the grinding media which resulted in more efficient grinding and lower re-circulating loads. Flotation recoveries also continued to be strong at 84.3%, in-line with the previous quarter.
Gold production attributable to Reefton was 26,037 ounces and was circa 4,900 ounces higher than Q1 2010. This reflects the concentrate in circuit at the end of the first quarter following autoclave maintenance at Macraes which resulted in the additional Reefton concentrate being carried over for processing in Q2.
- Table 2 -
Macraes Operating Statistics
-------------------------------------------------------------------------
Macraes
Goldfield Q2 Q1 Q2 Half Year Half Year
Operating Jun 30 Mar 31 Jun 30 Jun 30 Jun 30
Statistics 2010 2010 2009 2010 2009
-------------------------------------------------------------------------
Gold produced
(ounces) 41,504 44,165 51,148 85,669 117,514
Total Ore
Mined
(tonnes) 1,497,042 1,723,459 705,749 3,220,501 1,856,827
Ore Mined
grade
(grams/tonne) 1.16 1.22 2.26 1.19 2.27
Total Waste
Mined
(tonnes) incl
pre-strip 10,027,271 10,810,729 12,369,452 20,838,000 23,532,244
Mill Feed
(dry milled
tonnes) 1,336,605 1,289,938 1,399,024 2,626,543 2,829,152
Mill Feed
Grade
(grams/tonne) 1.16 1.30 1.42 1.23 1.59
Recovery (%) 83.9% 81.4% 80.3% 82.7% 81.0%
-------------------------------------------------------------------------
- Table 3 -
Reefton Operating Statistics
-------------------------------------------------------------------------
Reefton
Goldfield Q2 Q1 Q2 Half Year Half Year
Operating Jun 30 Mar 31 Jun 30 Jun 30 Jun 30
Statistics 2010 2010 2009 2010 2009
-------------------------------------------------------------------------
Gold produced
(ounces) 26,037 21,126 23,092 47,163 40,763
Total Ore
Mined (tonnes) 374,978 348,631 320,333 723,609 658,116
Ore Mined
grade
(grams/tonne) 2.27 2.63 2.44 2.4 2.5
Total Waste
Mined
(tonnes) incl
pre-strip 3,377,968 3,785,232 2,690,228 7,163,200 5,877,978
Mill Feed
(dry milled
tonnes) 401,064 345,720 308,196 746,784 621,098
Mill Feed
Grade
(grams/tonne) 2.25 2.44 2.71 2.34 2.61
Recovery (%) 84.3% 84.4% 81.0% 84.3% 80.9%
-------------------------------------------------------------------------
DEVELOPMENT
Didipio Gold - Copper Project (Philippines)
The Didipio Gold and Copper project in Luzon province, Philippines remains under care and maintenance with a reduced workforce at the project site.
The Company is currently evaluating various strategic and funding options for the project and this is currently a key priority for the management team, with good progress being made during the quarter. The mine design optimisation studies are progressing well and are in the final stages of completion.
No lost time injuries (LTI) were recorded during the quarter, similar to the same period last year.
OceanaGold continues to maintain a robust community relations program at the project and the surrounding area and was once again active with a number of initiatives during the quarter.
Two medical missions were hosted in Quirino and Nueva Viscaya provinces which treated more than 850 patients. This innovative and successful program continues to provide much needed medical resources to remote parts of Northern Luzon island and in particularly to residents who otherwise have limited access to healthcare facilities. The program is highly mobile and OceanaGold has been successful on bringing these services to communities across the region treating thousands of patients over the past two years.
The Company also assisted the local Barangay Council of Didipio this year with the annual "Summer League" sports competition. Infrastructure upgrades to some of the sporting venues were undertaken with some of the events also being hosted at the Didipio Community Hall, another infrastructure project which was sponsored by the Company last year.
EXPLORATION
Exploration expenditure for the second quarter totalled $1.9 million bringing the half year total to $3.7 million.
New Zealand
Macraes Goldfield
A 7,000 meter infill drilling program at Frasers Open Cut Stage 5 was completed from all easily accessible areas in the active pit. Additional drilling to further improve the confidence of the reserve for the pit expansion will likely re-start later in the year when other access areas become available.
The Macraes North tenements which are in the northern reaches of the 28 kilometer line of strike for the project have been undergoing an extensive sampling and trenching program over the past nine months. Assays are being evaluated from this program and drill targets are expected to be proposed for the spring drilling season to commence late in Q3.
At the Frasers underground mine, an announcement in May reported on the first five holes of a surface exploration program targeting down-dip extensions to the mineralization at Panel 2. All holes successfully intersected the hanging wall with two holes (RCD 5085, RCD 5090) approximately 250 metres down dip reporting good grades and widths (See Picture A on Page 10). More recently as reported on July 21st, a drill program from the underground exploration drive was successful in starting to confirm continuity between these holes and the current mining area. This program is ongoing.
A 14-hole infill drill program that focused on the southern end of P2 deeps was also completed during the quarter. Assay results that were reported on July 12th, showed good widths and grades beyond the current indicated resource boundary. These results are expected to expand the indicated resource boundary and subsequently the P2 Deeps reserve profile.
A diamond drill program using an air operated Kempe drill commenced during the quarter. This program is targeting extensions to the north and northeast of the current Panel 2 reserve towards the Macraes Fault zone which is a control to confirm mineralization. This program is expected to continue throughout H2 2010.
During the quarter, the exploration drive face was abandoned due to multiple parallel structures making further advance challenging. A new exploration drive has been started further to the north which will provide better access to the remainder of the eastern and north-eastern fringe of Panel 2. This transition has not affected exploration drive drilling, which continued from existing drill chambers.
Reefton Goldfield
A diamond drill program commenced on the first three high priority, near-mine targets identified from a structural mapping program. These targets are within a 2km radius of the Reefton processing plant. Assay results are pending with mineralised structures having been encountered in all drill holes to date.
The first phase of an RC drilling program testing for down-dip extensions to mineralization at the General Gordon, Empress and Souvenir open pits was announced in April. Results point to strong continuity of mineralized structures below the current planned pit floors which is expected to expand the pit shells. A second phase of drilling at General Gordon and Empress commenced during the quarter and results from this program are expected in the third quarter.
During the quarter the regolith sampling ("wacker drilling") program continued to ramp up. This program is targeting the next 14 most prospective targets identified at Reefton and is returning good samples from the bedrock below glacial till and other cover rocks. More than 200 samples from a planned 1,200 sample program have been completed over three targets identified in early Q1. Two crews are making good progress on this program which is ongoing and expected to continue at least until the end of the year.
In late June a $4.4 million increase was announced to the Reefton exploration budget to be spent over the next 18 months. These additional funds will focus on new drill programs targeting potential underground mining targets; a review of the Sam's Creek project to examine the best strategic option to progress this deposit and an increase to the technical staff for the exploration department.
Picture A - Plan view of Frasers Underground mine with reference to grade and widths (gram metres Au) buffered to a radius of 100m.
Full Company Release
To view the full company release, including images please refer to the company's website www.oceanagold.com
Philippines
Exploration activities in the Philippines during the second quarter focused primarily on the tenements in the far north of Luzon Island along with some Didipio regional work within and outside the area defined by the Didipio FTAA (Financial and Technical Assistance Agreement).
In northern Luzon, sampling and mapping programs continued to follow up on some areas where above normal manganese values were recorded during sampling programs in Q1. Once the complete set of assays is received, analysis will be undertaken to identify possible sources of these anomalies.
The work focused within and surrounding the Didipio FTAA comprised a series of sampling programs some of which have identified new gold and copper anomalies. These are being followed up to better understand the geologic setting and to determine if drill targets can be identified.
FINANCIAL SUMMARY
The table below provides selected financial data comparing Q2 2010 with Q1 2010 and Q2 2009 together with the half year 2010 compared to the half year 2009.
-------------------------------------------------------------------------
Q2 Q1 Q2 Half Year Half Year
Jun 30 Mar 31 Jun 30 Jun 30 Jun 30
STATEMENT OF 2010 2010 2009 2010 2009
OPERATIONS $'000 $'000 $'000 $'000 $'000
-------------------------------------------------------------------------
Gold sales 80,218 48,299 55,010 128,517 110,280
-------------------------------------------------------------------------
Cost of sales,
excluding
depreciation and
amortization (37,560) (35,364) (31,456) (72,924) (53,798)
-------------------------------------------------------------------------
General &
Administration (3,132) (4,380) (930) (7,512) (2,985)
-------------------------------------------------------------------------
Foreign Currency
Exchange Gain/
(Loss) 49 (115) (154) (66) (41)
-------------------------------------------------------------------------
Other income/
(expense) (406) 39 14 (367) 60
-------------------------------------------------------------------------
Earnings before
interest, tax,
depreciation &
amortization
(EBITDA)
(excluding gain/
(loss) on
undesignated
hedges) 39,169 8,479 22,484 47,648 53,516
-------------------------------------------------------------------------
Depreciation and
amortization (18,531) (17,572) (15,403) (36,103) (28,876)
-------------------------------------------------------------------------
Net interest
expense (3,706) (3,791) (3,337) (7,497) (6,701)
-------------------------------------------------------------------------
Earnings/(loss)
before income tax
and gain/(loss)
on undesignated
hedges 16,932 (12,884) 3,744 4,048 17,939
-------------------------------------------------------------------------
Tax on earnings/
loss (8,964) 3,337 1,653 (5,627) (1,903)
-------------------------------------------------------------------------
Earnings after
income tax and
before gain/(loss)
on undesignated
hedges 7,968 (9,547) 5,397 (1,579) 16,036
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Gain/(loss) on
fair value of
undesignated
hedges (14) 16,230 49,597 16,216 47,332
-------------------------------------------------------------------------
Tax on (gain)/loss
on undesignated
hedges 4 (4,869) (14,880) (4,865) (14,200)
-------------------------------------------------------------------------
Net earnings/
(loss) 7,958 1,814 40,114 9,772 49,168
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic earnings/
(loss) per share $0.03 $0.01 $0.25 $0.05 $0.30
-------------------------------------------------------------------------
Diluted earnings/
(loss) per share $0.03 $0.01 $0.21 $0.05 $0.26
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CASH FLOWS
-------------------------------------------------------------------------
Cash flows from
Operating
Activities (21,174) (10,260) 20,399 (31,434) 43,362
-------------------------------------------------------------------------
Cash flows from
Investing
Activities (21,236) (18,095) (17,919) (39,330) (29,489)
-------------------------------------------------------------------------
Cash flows from
Financing
Activities (4,200) 74,780 (1,198) 70,581 (5,282)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at As at
Jun 30 Dec 31
2010 2009
BALANCE SHEET $'000 $'000
-------------------------------------------------------------------------
Cash and cash equivalents 36,860 42,423
-------------------------------------------------------------------------
Other Current Assets 29,630 39,038
-------------------------------------------------------------------------
Non Current Assets 664,508 706,245
-------------------------------------------------------------------------
Total Assets 730,998 787,706
-------------------------------------------------------------------------
Current Liabilities 81,698 185,061
-------------------------------------------------------------------------
Non Current Liabilities 193,984 210,032
-------------------------------------------------------------------------
Total Liabilities 275,682 395,093
-------------------------------------------------------------------------
Total Shareholders' Equity 455,316 392,613
-------------------------------------------------------------------------
RESULTS OF OPERATIONS
Net Earnings
The Company reported a net profit of $7.9 million in the second quarter compared to a net profit of $1.8 million in Q1 2010. Total production of 67,541oz was 3.4% higher than Q1 2010 although 9.0% lower for the comparative period in 2009. Revenue has increased significantly by 66.1% over Q1 2010 and is a result of all sales now being made into the gold spot market after the hedge book was closed out with effect from March 31, 2010. The average gold price received was $1,191 compared to $743 in Q1 when 78.4% of the production was delivered into out of the money hedge contracts.
The impact of non-cash charges for marked to market gains and losses on hedges have in the past been significant. Consequently, EBITDA (earnings before interest, tax, depreciation and amortisation excluding gains/losses on undesignated hedges) and EBIT (earnings before interest and tax before undesignated hedge gains/losses) are reported as measures of operating performance on a consistent and comparable basis.
The Company reported EBITDA before gains/losses on undesignated hedges of $39.2 million compared with $8.5 million in Q1 2010. Higher gold sales revenue from all sales being made at spot rates contributed to this strong operating result.
The EBIT before fair value adjustment of hedges was a profit of $16.9 million compared to a Q1 2010 loss of $12.8 million with improvements a direct function of the increased sales revenue.
Sales Revenue
Gold revenue of $80.2 million was a 66.1% increase over Q1 2010 due to an increase of 3.5% in sales volumes as well as a 60.3% increase in the average price received. The increase in price is a result of sales at spot gold prices after close out of the hedge book in March 2010.
Gold sales volumes for Q2 2010 of 67,347 ounces were 3.5% higher than Q1 2010.
The average gold price received in the quarter increased to US$1,191 per ounce.
Undesignated Hedges Gains/Losses
Undesignated hedge gains and losses calculated as a fair value adjustment of the Company's undesignated hedges are brought to account at the end of each reporting period, and reflect changes in the spot gold price. This also includes adjustments made to take account of gold deliveries into the hedge book, as the derivative liability was released. These valuation adjustments to June 30, 2010, reflect a gain of $16.2 million and compares to $16.2 million at March 31, 2010. After the close out of the hedge book there is only a residual impact from a small number of put options.
Using proceeds from the share placement in March, all forward and call derivative instruments were settled. The Company's current policy is to be unhedged with all gold production sold into the market at spot rates.
Operating Costs & Margins
Cash costs per ounce sold were $564 in Q2, slightly higher than the previous quarter. NZD costs were relatively stable over the quarter with a small increase to diesel prices and maintenance costs along with charges attributable to stock movements. In comparison to the prior year cash unit costs are higher in USD terms due to the exchange rate impact, but also higher due to lower production volumes.
The cash margin of $627 per ounce resulted in earnings before interest, tax, depreciation & amortization (excluding undesignated hedge gains/losses) of $39.2 million for the quarter, compared to $8.4 million in Q1 2010.
Depreciation and Amortization
Depreciation and amortization charges are calculated on a unit of production basis and total $18.5 million for the quarter. These charges were higher than Q1 2010 as there was an increase in pre-strip amortized and allocated to the zones of production.
Depreciation and amortization charges include amortization of mine development, deferred waste stripping costs and depreciation on equipment.
Net Interest expense
The net interest expense of $3.7 million is consistent with Q1 2010 and associated with the project loan, convertible notes and finance leases.
DISCUSSION OF CASH FLOWS
Operating Activities
Cash flows from operating activities decreased to be a net outflow of $21.2 million compared to $10.3 million outflow in Q1 2010. This net outflow includes a payment of $56.7 million to settle the balance of hedge contracts. The operating cash flow before settlements was an inflow of $35.5 million. This increase reflected the higher average gold prices derived from spot gold sales.
Investing Activities
Investing activities were comprised of expenditures for pre-stripping and sustaining capital for the New Zealand operations plus some capitalised holding costs associated with the Didipio Gold - Copper Project.
Cash used for investing activities totaled $21.2 million compared to $18.1 million and $17.9 million in Q1 2010 and Q2 2009 respectively.
Financing Activities
Finance outflows were $4.2 million being largely loan repayments of $1.3 million and lease payments of $2.2 million. The half year inflows include the equity placement in March that raised $79.5 million net of costs.
DISCUSSION OF FINANCIAL POSITION AND LIQUIDITY
Company's funding and capital requirements
For the quarter ended June 30, 2009, the Company earned a net profit of $7.9 million. As at that date the current liabilities of the Company exceeded current assets by $15.2 million. Current liabilities include $46.4 million of convertible notes. Cash flow projections for the near term indicate sufficient funds will be generated to meet all operating obligations at the current forecast gold price.
Commitments
OceanaGold's capital commitments as at June 30, 2010 are as follows:
Jun 30
2010
$'000
Within 1 year 15,326
greater than 1 year -
---------
15,326
---------
---------
These commitments include equipment associated with a move to owner mining at Frasers underground in addition to orders for long lead time mining equipment as units require replacement. Some of these commitments are expected to be serviced with lease contracts.
There have been no material changes in the capital and operating lease commitments as disclosed in the December 31, 2009 audited financial statements.
Financial position
Current Assets
Current assets have decreased by $61.3 million since Q1 primarily due to cash settlement of hedge contracts for $56.7 million and half year interest payments on convertible notes.
Non-Current Assets
At the end of the quarter, non-current assets were $664.5 million compared to $706.4 million at March 2010. The expenditure on Property, Plant and Equipment, Mining Assets and non-current inventories was broadly in line with depreciation and amortization but there is a decrease on assets due to the strengthening US dollar. Future income tax assets decreased by $2.8 million largely due to utilization of tax losses as well as a decrease in the income tax rate from 30% to 28%.
Current Liabilities
Current liabilities decreased $67.9 million during the quarter. A reduction in accrued liabilities of $56.7 million represented payment of the final balance owing to the bank counterparties that provided derivative instruments. In addition, interest bearing loans decreased due to final payment of the project loan and the benefit from the strengthening US dollar.
Non-Current Liabilities
Non-current liabilities are $194.0 million at June 30 2010 and have reduced by $16.5 million since March 31, 2010. This is due to a decrease in future tax liabilities of $6.6 million combined with the translation benefit from a strengthening US dollar.
Derivative Assets / Liabilities
OceanaGold settled derivative instruments in relation to 74,880 ounces under forward gold sales contracts and 78,018 ounces under gold put options at the end of March 2010.
A summary of OceanaGold's marked to market adjustment on derivatives is:
Jun 30 Dec 31
2010 2009
$'000 $'000
Current Assets
Gold put options 1 141
---------------------
Total Assets 1 3,490
---------------------
Jun 30 Dec 31
2010 2009
$'000 $'000
Current Liabilities
Gold forward sales contracts - 54,557
Gold call options - 35,318
---------------------
Total Liabilities - 89,875
---------------------
Shareholders' Equity
A summary of the movement in shareholders' equity is set out below:
Quarter
Ended
Jun 30
2010
$'000
Total equity at beginning of financial period 474,106
---------
Profit/(loss) after income tax 7,958
Movement in other comprehensive income (26,776)
Movement in contributed surplus 493
Equity raising (net of costs) (465)
---------
Total equity at end of financial period 455,316
---------
Shareholders' equity has decreased to $455.3 million at quarter end primarily as a result of the profit earned for the quarter, and offset by losses from currency translation differences reflected in Other Comprehensive Income that arises from the translation of entities with a functional currency other than USD.
Capital Resources
As at June 30, 2010, the share and securities summary was:
Shares outstanding 228,198,170
Options outstanding 5,759,593
As at December 31, 2009, the share and securities summary was:
Shares outstanding 185,880,075
Options outstanding 5,637,259
As at July 29, 2010 share and securities summary is:
Shares outstanding 228,198,170
Options outstanding 5,759,593
CRITICAL ACCOUNTING ESTIMATES AND ACCOUNTING POLICIES
The accounting policies that involve significant management judgment and estimates are discussed in this section. For a complete list of the significant accounting policies, reference should be made to Note 1 of the 2009 audited consolidated financial statements of OceanaGold Corporation.
Exploration and Evaluation Expenditure
Exploration and evaluation expenditure is stated at cost and is accumulated in respect of each identifiable area of interest.
Such costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area of interest (or alternatively by its sale), or where activities in the area have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable resources, and active work is continuing.
Accumulated costs in relation to an abandoned area are written off to the Statement of Operations in the period in which the decision to abandon the area is made.
A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest.
Mining Properties in Production or Under Development
Expenditure relating to mining properties in production and development are accumulated and brought to account at cost less accumulated amortisation in respect of each identifiable area of interest. Amortisation of capitalised costs, including the estimated future capital costs over the life of the area of interest, is provided on the production output basis, proportional to the depletion of the mineral resource of each area of interest expected to be ultimately economically recoverable.
Costs associated with the removal of overburden and other mine waste materials that are incurred in the production phase of mining operations are included in the costs of inventory in the period in which they are incurred, except when the charges represent a betterment to the mineral property. Charges represent a betterment to the mineral property when the stripping activity provides access to reserves that will be produced in future periods that would not have been accessible without the stripping activity. When charges are deferred in relation to a betterment, the charges are amortized over the reserve in the betterment accessed by the stripping activity using the units of production method.
A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Should the carrying value of expenditure not yet amortised exceed its estimated recoverable amount, the excess is written off to the Statement of Operations.
Asset Retirement Obligations
OceanaGold recognises the fair value of future asset retirement obligations as a liability in the period in which it incurs a legal obligation associated with the retirement of long-lived assets that results from the acquisition, construction, development and/or normal use of the assets. OceanaGold concurrently recognises a corresponding increase in the carrying amount of the related long-lived asset that is depreciated over the life of the asset.
The key assumptions on which the fair value of the asset retirement obligations are based include the estimated future cash flow, the timing of those cash flows and the credit-adjusted risk-free rate or rates on which the estimated cash flows have been discounted. Subsequent to the initial measurement, the liability is accreted over time through periodic charges to earnings. The amount of the liability is subject to re-measurement at each reporting period if there has been a change to the key assumptions.
Asset Impairment Evaluations
The carrying values of exploration, evaluation, mining properties in production or under development and plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying value exceeds the undiscounted future cash flows from these assets, the assets are written down to the fair value of the future cash flows based on OceanaGold's discount rate of the asset.
Derivative Financial Instruments/Hedge Accounting
The consolidated entity can use derivative financial instruments to manage commodity price and foreign currency exposures from time to time.
Derivative financial instruments are initially recognised in the balance sheet at fair value and are subsequently re-measured at their fair values at each reporting date.
The fair value of gold hedging instruments is calculated by discounting the future value of the hedge contract at the appropriate prevailing quoted market rates at the reporting date. The fair value of forward exchange contracts is calculated by reference to current forward exchange rate for contracts with similar maturity profiles.
Certain derivative instruments do not qualify for hedge accounting or have not been accounted for as fair value or cash flow hedges. Changes in the fair value of these derivative instruments are recognised immediately in the statement of operations. The company does not have any designated hedges.
Stock Option Pricing Model
Stock options granted to employees or external parties are measured by reference to the fair value at grant date and are recognised as an expense in equal installments over the vesting period and credited to the contributed surplus account. The expense is determined using an option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the non-tradable nature of the option, the current price and expected volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option.
Income Tax
The Group follows the liability method of income tax allocation. Under this method, future tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the substantially enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided to the extent that it is more likely than not that those future income tax assets will not be realised.
Foreign Currency Translation
The consolidated financial statements are expressed in United States dollars ("USD") and have been translated to USD using the current rate method described below. The controlled entities of OceanaGold have either Australian dollars ("AUD"), New Zealand dollars ("NZD") or United States dollars ("USD") as their functional currency.
OceanaGold employs the current rate method of translation for its self-sustaining operations. Under this method, all assets and liabilities are translated at the period end rates and all revenue and expense items are translated at the average exchange rates for recognition in the statement of operations. Differences arising from these foreign currency translations are recorded in shareholders' equity as a cumulative translation adjustment.
OceanaGold employs the temporal method of translation for its integrated operations. Under this method, monetary assets and liabilities are translated at the period end rates and all other assets and liabilities are translated at applicable historical exchange rates. Revenue and expense items are translated at the rate of exchange in effect at the date the transactions are recognized in the statement of operations, with the exception of depreciation and amortization which is translated at the historical rate for the associated asset. Exchange gains and losses on currency translation adjustments are included in the statement of operations.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes. Significant areas where management's judgment is applied include ore reserve and resource determinations, exploration and evaluation assets, mine development costs, plant and equipment lives, contingent liabilities, current tax provisions and future tax balances and asset retirement obligations. Actual results may differ from those estimates.
RISKS AND UNCERTAINTIES
This document contains some forward looking statements that involve risks, uncertainties and other factors that could cause actual results, performance, prospects and opportunities to differ materially from those expressed or implied by those forward looking statements. Factors that could cause actual results or events to differ materially from current expectations include, among other things: volatility and sensitivity to market prices for gold; replacement of reserves; procurement of required capital equipment and operating parts and supplies; equipment failures; unexpected geological conditions; political risks arising from operating in certain developing countries; inability to enforce legal rights; defects in title; imprecision in reserve estimates; success of future exploration and development initiatives; operating performance of current operations; ability to secure long term financing and capital, water management, environmental and safety risks; seismic activity, weather and other natural phenomena; failure to obtain necessary permits and approvals from government authorities; changes in government regulations and policies including tax and trade laws and policies; ability to maintain and further improve labour relations and other development and operating risks.
For further detail and discussion of risks and uncertainties refer to the Annual Information Form available on the Company's website.
CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION
There have been no material changes from the accounting policies of FY2009.
Adoption of new accounting policies
The CICA issued three new accounting standards in January 2009: Section 1582, "Business Combinations", Section 1601, "Consolidated Financial Statements" and Section 1602, "Non-Controlling interests". These new standards will be effective for fiscal years beginning on or after January 1, 2011. The Company is in the process of evaluating the requirements of the new standards.
Section 1582, "Business Combinations" replaces section 1581, "Business Combinations", and establishes standards for the accounting for a business combination. It provides the Canadian equivalent to IFRS 3 - "Business Combinations". The section applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2011.
Sections 1601, "Consolidated Financial Statements", and 1602, "Non-Controlling interests", together replace section 1600, "Consolidated Financial Statements". Section 1601 establishes standards for the preparation of consolidated financial statements and applies to interim and annual consolidated financial statements relating to fiscal years beginning on or after January 1, 2011.
Section 1602 "Non-Controlling interests" establishes standards for accounting for non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. It is equivalent to the corresponding provisions of IFRS 27 - "Consolidated and Separate Financial Statements" and applies to interim and annual consolidated financial statements relating to fiscal years beginning on or after January 1, 2011.
Accounting policies effective for future periods
International Financial Reporting Standards ("IFRS")
The Canadian Institute of Chartered Accountant's (CICA's) Accounting Standards Board announced that publicly accountable enterprises will be required to adopt IFRS effective January 1, 2011. At the effective date, the balance sheet as at January 1, 2010 will require conversion to IFRS to establish opening balances which will form the basis for comparative information to be reported in 2011.
OceanaGold Corporation has continued to work on its transition to IFRS, including assessment of the impact on its accounting systems and financial statements. The conversion project includes review of project team, governance, resources, key CGAAP to IFRS differences, accounting policies and an implementation plan. The financial reporting impact of transitioning to IFRS is currently being evaluated and the quantitative impact has not been fully determined at the date of this report.
The following table summarises the key activities in the transition plan and the current status.
-------------------------------------------------------------------------
ACTIVITY MILESTONES STATUS
-------------------------------------------------------------------------
Financial reporting:
- Complete Diagnostic analysis Preliminary assessment
diagnostic prepared. of accounting and
assessment of reporting differences
accounting has been completed
and reporting based on full GAAP
differences diagnostic.
between CGAAP
and IFRS.
- Assess IFRS 1 Management and audit Decisions in relation
elections, committee approval to IFRS 1 elections and
options and for policy selection of IFRS
selection of recommendations and accounting policies are
IFRS accounting IFRS elections 2nd in progress.
policies. half of 2010.
- Development of Management and audit
IFRS financial committee approval on
statement format, IFRS consolidated
including financial statements
disclosures. during Q1 2011.
- Quantification of Final quantification
effects of conversion effects
of conversion. on 2010 comparative
period Q4 2010
-------------------------------------------------------------------------
Systems and processes:
- Assessment of Systems, processes Preliminary assessment
impact of changes and internal control of potential updates
to key systems and documentation changes is underway. The impact
processes. finalised Q4 2010. on IT systems is not
expected to be
significant.
- Documentation and Evaluation and update
testing of internal of controls and
controls and processes in Q1 2011
disclosure controls
over amended
systems and
processes.
-------------------------------------------------------------------------
Business:
- Assessment of Contract analysis and Preliminary assessment
impacts on all impact to be completed of the impacts on other
aspects of the by Q4 2010. areas of the business
business, including is underway.
contractual
arrangements.
- Communicate Budgets and long term Communication is
conversion plan and planning to ongoing.
progress internally incorporate outcomes
and externally. of IFRS transition
from Q4 2010.
- Training staff and
ensuring adequate
financial reporting
expertise is in
place.
-------------------------------------------------------------------------
First-time adoption of IFRS
IFRS 1 requires that an entity apply all standards effective at the end of its first IFRS reporting period retrospectively. However, IFRS 1 does provide certain mandatory and limited optional exemptions in specific areas of certain standards that will not require retrospective application of IFRS. The most significant exemptions which are expected to apply in preparation of the company's first consolidated financial statements under IFRS are summarised as follows:
Accounting Estimates
Accounting estimates applied in accordance with IFRS at the date of transition should be consistent with estimates in accordance with Canadian GAAP unless there is objective evidence that estimates were in error.
Business Combinations
IFRS allows guidance under IFRS 3R Business Combinations to be applied retrospectively or prospectively. OceanaGold expects adopt IFRS 3 prospectively.
Asset Retirement Obligations (ARO)
IFRIC 1 requires changes in decommissioning liabilities to be included in the cost of the asset and depreciated. A first-time adopter has an option to a simplified approach to calculate and record the asset related to the ARO. OceanaGold's existing approach complies with recognition and measurement of decommissioning liabilities under IFRS, including recording the liability in the cost of the asset, by discounting the liability to the date when it first arose, and depreciating the asset to transition date. There will be no change on transition to IFRS.
Property, Plant and Equipment
There is an option to record property, plant and equipment at fair value on transition to IFRS. This fair value becomes the deemed cost of the asset for reporting under IFRS. OceanaGold is not planning to use this election and property, plant and equipment will continue to be recorded under the cost model, at the carrying amounts, on the date of transition to IFRS.
Cumulative translation differences
IAS 21, The Effects of Changes in Foreign Exchange Rates, requires an entity to determine the translation differences in accordance with IFRS from the date on which a subsidiary was formed or acquired. IFRS 1 allows cumulative translation differences for all foreign operations to be deemed zero at the date of transition to IFRS, with future gains or losses on subsequent disposal of any foreign operations to exclude translation differences arising from periods prior to the date of transition to IFRS. OceanaGold expects to use this exemption and existing cumulative translation differences will be transferred to retained earnings on transition to IFRS.
Key Differences - Canadian GAAP to IFRS
In addition to the exemptions and exceptions discussed above, the following explains the key areas where changes in accounting policies could have significant differences between Canadian GAAP and IFRS as they apply to OceanaGold consolidated financial statements:
Impairment
Canadian GAAP - A recoverability test is performed by first comparing the undiscounted expected future cash flows to be derived from the asset to its carrying amount. If an asset's undiscounted expected future cash flows do not exceed its carrying value, an impairment loss is calculated as the excess of the asset's carrying amount over its fair value (on a discounted basis).
IFRS - A recoverability test is performed by comparing the carrying amount to the asset's recoverable amount. The impairment loss is calculated as the excess of the asset's carrying amount over its recoverable amount. The recoverable amount is defined as the higher of the asset's fair value less costs to sell and its value-in-use. The expected future cash flows from the asset are discounted to their net present value in the recoverable amount test. As a result of this difference in measurement methodology, impairments under IFRS are more likely.
With the Didipio project currently on care and maintenance there is potential for material impairment to be required on its assets.
Foreign Exchange Translation
Canadian GAAP - Distinction is made between integrated and self sustaining foreign operations with the temporal and the current rate methods of translation applied respectively.
IFRS - A functional and presentation currency approach is taken to foreign exchange translation and no distinction is made between integrated and self sustaining foreign operations. Where the functional currency of an entity is different from the presentation currency, an approach similar to the current rate method under CGAAP is applied. The key elements are:
- Assets and liabilities are translated at the balance date exchange
rate.
- Income and expenses are translated at the exchange rate at the date
of the transaction although an average rate may be applied as a proxy
in many circumstances.
- All resulting currency exchange differences are recognised in the
Foreign Currency Translation Reserve (FCTR) within other
comprehensive income.
The most significant differences for OceanaGold are likely to be in relation to the Philippines operations which are currently being treated as an integrated foreign operation under CGAAP. There will be no change in the current treatment of New Zealand operations which are classified self-sustaining under CGAAP.
Income tax
Canadian GAAP - The amount that a future income tax asset is recognised at is limited to the amount that is more likely than not to be realised. Future taxes are split between current and non-current components on the basis of either (1) the underlying asset or liability or (2) the expected timing reversal of items when not related to an asset or liability.
IFRS - Deferred tax assets are recognised in their entirety when it is probable that sufficient future taxable profit will be available to recover the asset. All deferred tax assets and liabilities will be classified as non-current.
OceanaGold does not expect there to be changes in the deferred tax assets currently recognised. The impact of the differences on transition will be limited to reclassification of current deferred tax liabilities and assets to non-current classification.
Other Business Considerations
The transition to IFRS may also have an impact on some contractual obligations. Management will have more insight on the effects to other business considerations once the full impact of transition has been quantified.
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited information for each of the eight quarters ended September 30, 2008 through to June 30, 2010. This information has been derived from our unaudited consolidated financial statements which, in the opinion of management, have been prepared on a basis consistent with the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for fair presentation of our financial position and results of operations for those periods.
-------------------------------------------------------------------------
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
2010 2010 2009 2009 2009
$'000 $'000 $'000 $'000 $'000
-------------------------------------------------------------------------
Gold sales 80,218 48,299 66,849 59,928 55,010
EBITDA (excluding
undesignated
gain/(loss) on
hedges) 39,169 8,479 28,237 24,425 22,484
Earnings/(loss)
after income tax
and before
undesignated
gain/(loss) on
hedges (net of
tax) 7,968 (9,547) (4,151) 1,859 5,397
Net earnings/
(loss) 7,958 1,814 (8,456) 13,800 40,114
Net earnings
per share
Basic $0.03 $0.01 ($0.05) $0.08 $0.25
Diluted $0.03 $0.01 ($0.05) $0.07 $0.21
-------------------------------------------------------------------------
-------------------------------------------------
Mar 31 Dec 31 Sep 30
2009 2008 2008
$'000 $'000 $'000
-------------------------------------------------
Gold sales 55,270 47,845 54,038
EBITDA (excluding
undesignated
gain/(loss) on
hedges) 31,032 24,294 18,991
Earnings/(loss)
after income tax
and before
undesignated
gain/(loss) on
hedges (net of
tax) 10,639 1,917 2,806
Net earnings/
(loss) 9,054 (13,426) (10,905)
Net earnings
per share
Basic $0.06 ($0.08) ($0.07)
Diluted $0.05 ($0.08) ($0.07)
-------------------------------------------------
The most significant factors causing variation in the results are the commissioning of both the Reefton open pit and Frasers underground mines, the variability in the grade of ore mined from the Macraes open pit mine and variability of cash cost of sales due to the timing of waste stripping activities. The volatility of the gold price has a significant impact both in terms of its influence upon gold sales revenue and its impact upon undesignated gains/(losses) on hedges. Adding to the variation are the large movements in foreign exchange rates between the USD and the NZD.
As noted in the December 2008 MD&A an adjustment in the fourth quarter 2008 to the pre-stripping account is reflected in the "December 2008" quarter above. If the adjustment is updated to the quarter to which it relates there is an equal and offsetting effect increasing Q2 2008 EBITDA by $4.9 million, earnings after tax and net earnings by $3.4 million and earnings per share by $0.02. This is considered a timing difference and therefore not significant with the details and analysis provided above.
NON-GAAP MEASURES
Throughout this document, we have provided measures prepared according to Canadian generally accepted accounting principles ("GAAP"), as well as some non-GAAP performance measures. As non-GAAP performance measures do not have any standardized meaning prescribed by GAAP, they are unlikely to be comparable to similar measures presented by other companies.
We provide these non-GAAP measures as they are used by some investors to evaluate OceanaGold's performance. Accordingly, such non-GAAP measures are intended to provide additional information and should not be considered in isolation, or a substitute for measures of performance in accordance with GAAP.
Earnings before interest, tax, depreciation and amortization (EBITDA) is one such non-GAAP measure and a reconciliation of this measure to net earnings/(losses) is provided on page 10.
Cash and non cash costs per ounce are other such non-GAAP measures and a reconciliation of these measures to cost of sales, including depreciation and amortization, is provided on the next page.
-------------------------------------------------------------------------
Half Year Half Year
Q2 Q1 Q2 Ended Ended
Jun 30 Mar 31 Jun 30 Jun 30 Jun 30
2010 2010 2009 2010 2009
$'000 $'000 $'000 $'000 $'000
-------------------------------------------------------------------------
Cost of sales,
excluding
depreciation and
amortization 37,560 35,364 31,456 72,924 53,798
Depreciation and
amortization 18,531 17,572 15,403 36,103 28,876
Total cost of
sales 56,091 52,936 46,859 109,027 82,674
Add sundry general
& administration
adjustment 428 447 415 875 719
Less selling costs 117 59 (110) 176 (203)
Total operating
cost of sales 56,636 53,442 47,164 110,078 83,190
Gold Sales from
operating mines
(ounces) 67,347 65,041 75,319 132,388 156,412
Total Operating
Cost ($ per ounce) 841 822 626 831 532
Less Non-Cash Cost
($ per ounce) 277 271 203 274 183
Cash Operating
Cost ($ per ounce) 564 551 423 557 349
-------------------------------------------------------------------------
ADDITIONAL INFORMATION
Additional information referring to the Company, including the Company's Annual Information Form, is available on SEDAR at www.sedar.com and the Company's website at www.oceanagold.com.
DISCLOSURE CONTROLS AND PROCEDURES
The Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the Company's disclosure controls and procedures as at June 30, 2010. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as at June 30, 2010 to provide reasonable assurance that material information relating to the Company, including its consolidated subsidiaries, would be made known to them by others within those entities.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of OceanaGold, including the Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the design and operation of the Company's of the internal controls over financial reporting and disclosure controls and procedures as of June 30, 2010.
Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that they were effective at a reasonable assurance level.
There were no significant changes in the Company's internal controls, or in other factors that could significantly affect those controls subsequent to the date the Chief Executive Officer and Chief Financial Officer completed their evaluation, nor were there any significant deficiencies or material weaknesses in the Company's internal controls requiring corrective actions.
The Company's management, including the Chief Executive Officer and the Chief Financial Officer does not expect that its disclosure controls and internal controls over financial reporting will prevent all errors and fraud. A cost effective system of internal controls, no matter how well conceived or operated, can provide only reasonable not absolute, assurance that the objectives of the internal controls over financial reporting are achieved
For further information: Mr Darren Klinck, Vice President, Corporate and Investor Relations, Tel: +61(3) 9656 5300
Share this article