OceanaGold Third Quarter 2009 Management Discussion & Analysis
/NOT FOR DISSEMINATION OR DISTRIBUTION IN THE UNITED STATES AND NOT FOR
DISTRIBUTION TO US NEWSWIRE SERVICE/
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 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
This Management Discussion & Analysis may use the terms "Measured", "Indicated" and "Inferred" Resources. U.S. investors are advised that while such terms are recognised and required by Canadian regulations, the Securities and Exchange Commission does not recognise 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 mineral Resource exists, or is economically or legally mineable.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Quarter Ended September 30, 2009
HIGHLIGHTS
- Sold 71,492 ounces of gold during the third quarter which was in line
with plan bringing total sales for the nine months ended September
2009 to 227,904 ounces.
- EBITDA (earnings before interest, taxes, depreciation and
amortisation and excluding unrealised gains/losses on undesignated
hedges) was $24.4 million for the quarter.
- Achieved cash flow from operations of $21.6 million bringing the
total for the nine months ended September to $65.0 million.
- Announced further drill results and a preliminary resource estimate
for the Panel 2 Deeps deposit at the Frasers Underground mine.
- Scope and optimisation study of Didipio Gold Copper Project is being
progressed.
- Successfully completed a capital raising by way of an institutional
equity placement for A$24.2 million (gross proceeds).
* All statistics are compared to the corresponding 2008 period unless
otherwise stated.
(xx)OceanaGold has adopted USD as its presentation currency and all
numbers in this document are expressed in USD unless otherwise
stated.
OVERVIEW
Results from Operations
OceanaGold
Operating cash costs for the third quarter were
The NZD averaged
Total material movement during the quarter was higher across all the operations as equipment utilisation improved and increased efficiencies were achieved through the continuous improvement programme at the mines. Combined material through the process plants was on plan with mill feed grade slightly lower compared to the previous quarter.
EBITDA (earnings before interest, tax and depreciation and amortisation and excluding gains/losses on undesignated hedges) for the quarter was
Cash flow from operating activities was
Didipio Gold - Copper Project
The Didipio project remained on care and maintenance during the quarter. The Company is continuing to progress an internal technical and optimisation study to establish the maximum value inherent in developing the project. Site accommodation and office facilities continue to be maintained for security, maintenance personnel, environmental and community relations staff at the project.
The company continues to fulfill all it's community commitments and pursued a number of initiatives during the quarter. Key areas of focus were community health, education and the provision of ongoing financial support to the local community development association for certain priority projects.
FY 2009 Production Guidance Revised
Production guidance for FY2009 has been increased to 297,000 - 303,000 ounces. Cash cost guidance has also been adjusted upwards to
FY 2010 Preliminary Production Guidance
Preliminary production guidance for 2010 is in the range of 270,000 - 290,000 ounces. The Company will provide further production and cash cost guidance in early 2010.
- Table 1 -
Key Financial and Operating Statistics
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Q3 Q2 Q3 YTD YTD
Financial Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
Statistics 2009 2009 2008 2009 2008
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Gold Sales
(Ounces) 71,492 75,319 62,753 227,904 189,308
USD USD USD USD USD
--- --- --- --- ---
Average Price
Received ($ per
ounce) 838 730 861 747 895
Cash Operating
Cost ($ per ounce) 473 423 640 388 620
Cash Operating
Margin ($ per
ounce) 365 307 222 359 273
Non-Cash Cost
($ per ounce) 249 203 181 204 198
Total Operating
Cost ($ per ounce) 722 626 821 592 818
Total Cash
Operating Cost
($ per tonne
processed) 19.83 18.59 23.29 17.13 23.35
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Combined Q3 Q2 Q3 YTD YTD
Operating Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
Statistics 2009 2009 2008 2009 2008
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Gold produced
(ounces) 70,020 74,240 63,270 228,297 184,394
Total Ore Mined
(tonnes) 1,521,202 1,026,082 1,381,744 4,036,145 4,069,329
Ore Mined grade
(grams/tonne) 1.71 2.32 1.66 2.10 1.64
Total Waste
Mined
(tonnes) -
incl
pre-strip 16,437,702 15,059,680 12,644,334 45,847,924 39,946,451
Mill Feed (dry
milled
tonnes) 1,705,948 1,707,220 1,722,753 5,156,198 5,046,451
Mill Feed Grade
(grams/tonne) 1.59 1.65 1.46 1.71 1.46
Recovery (%) 78.3% 80.4% 81.9% 80.1% 78.6%
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Q3 Q2 Q3 YTD YTD
Combined Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
Financial 2009 2009 2008 2009 2008
Results $'000 $'000 $'000 $'000 $'000
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EBITDA
(excluding
unrealised
gain/(loss)
on hedges) 24,425 22,484 18,991 77,941 41,812
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Earnings/(loss)
after income
tax and before
undesignated
gain/(loss) on
hedges (net of
tax) 1,859 5,397 2,806 17,894 (5,462)
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Reported EBITDA
(including
unrealised
gain/(loss)
on hedges) 41,484 72,081 (596) 142,332 (9,677)
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Reported earnings/
(loss) after
income tax
(including
unrealised
gain/(loss)
on hedges) 13,800 40,114 (10,905) 62,968 (41,309)
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PRODUCTION
Production for the third quarter of 2009 was 70,020 ounces of gold resulting in total production of 228,297 ounces for the nine months ended
Total combined operating cash costs for the operations were
Production for the year to date is slightly ahead of expectation and is a result of steady operations at both Macraes and Reefton. Company production guidance for FY 2009 has been upgraded to 297,000 - 303,000 ounces (from the previous 280,000 - 300,000 ounces). Cash cost guidance has also been raised to
Cash flow generated from operations for the quarter was
OPERATIONS
Macraes Goldfield (New Zealand)
The two Macraes mining operations (Macraes open-cut and Frasers underground) incurred one lost time injury (LTI) in the third quarter bringing the year to date total to four. Safety continues to be a key focus at the
Production from the Macraes Goldfield was 48,065 gold ounces, which was down slightly lower than recorded for Q2 2009. Planned changes to the mining sequence and lower recoveries from the material mined at the Frasers 4C area of the pit were the main contributing factors to the variance.
Total waste and ore mined was 14.74 million tonnes compared with 13.08 million tonnes in the previous quarter. Movements were positively affected by higher equipment utilisation, favourable weather conditions, and improved efficiencies achieved through a continuous improvement programme with initiatives such as hot seating. Ore tonnes mined were 63% higher when compared to the previous quarter. Shorter haul distances and improved efficiencies were the main contributors to the improved movements. As a result, a higher percentage of material mined was from the open pit with the average ore grade mined from the combined Macraes operations being lower than the previous quarter at 1.47 g/t.
Frasers underground mine produced another record quarter with 233,800 ore tonnes being mined improving on last quarter's total by approximately 10,000 tonnes. The mine is now operating at a rate of between 900,000 and one million tonnes per annum. Better ground conditions have led to less dilution than expected and this combined with slightly higher grades than modeled has resulted in a mined ore grade that is exceeding plan. Development metres for the quarter were slightly above plan with an additional development also started from Panel 2 for an exploration drive.
Processing Plant throughput was according to plan for the quarter with mill feed of 1.39 million tonnes processed compared to 1.40 million tonnes in Q2 2009. Mill feed grade was 1.38 g/t and generally consistent with Q2 2009.
Recoveries at the Macraes process plant were lower than plan during the quarter and are the key area for operational focus. Process recoveries were 77.6% down from 80.3% achieved during Q2 2009. The main factor causing the underperformance was associated with lower than expected floatation recovery from the Frasers 4C open pit material on account of some subtle differences in ore characteristics which resulted in slower floatation response times. Additional test work and adjustments to the flotation circuit have resulted in the overall recovery now delivering in the 79-80% range. A number of additional recovery enhancement initiatives have been identified and will be actioned over the next two quarters. These include higher unit cell recoveries, improving the effectiveness of the classification cyclones and increased electrowinning efficiency. The expectation is that these initiatives should result in recoveries returning the 81-82% range.
Reefton Goldfield (
There were two LTI's in the third quarter bringing the year to date total to six.
Movements for the quarter were above plan at 3.41 million tonnes. This compares favorably to Q2 2009 (3.01 million tones). Improved weather conditions and better equipment availabilities were the main factors contributing to improved performance. The completion of the new Globe Progress South haul ramp has also shortened haul distances to the waste rock stack. This should continue to assist productivity in future quarters.
Gold production from Reefton concentrate was 21,955 gold ounces. Mill throughputs continue to run above design capacity and were slightly higher than the previous quarter, with 309,762 tonnes being processed. Mill feed grade of 2.55 g/t was 6% lower than the previous quarter, nevertheless the average grade over the YTD period is still slightly ahead of plan. Overall recovery was 81.5% and 1.3% lower than Q2 2009 as a result of treatment of some higher clay content material.
A review of the process plant resulted in some minor changes to the circuit. Froth crowders in the cleaner scavenger flotation cells and some adjustments to the water treatment regime were implemented and should both contribute to improved recoveries. Additionally, improved ore feed strategies have been identified as part of our continuous improvement programme. This will result in a more steady process plant operation as they are implemented.
Community Relations
The OceanaGold Tours programme recorded a 12% increase in visitors over the same period last year. More than 150 people took in the mine tour which brings tourists to the region. The tour also links in with one of the more popular tourist attractions in central Otago, the Taieri Gorge railway tour which is fully booked for the summer season.
Both the Macraes and Reefton operations are regular supporters of local education initiatives and during the quarter support was provided to various schools in the district for the purchase of gym equipment and to assist with various school fieldtrips.
- Table 2 -
Macraes Operating Statistics
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Macraes
Goldfield Q3 Q2 Q3 YTD YTD
Operating Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
Statistics 2009 2009 2008 2009 2008
-------------------------------------------------------------------------
Gold produced
(ounces) 48,065 51,148 45,843 165,579 131,172
Total Ore
Mined
(tonnes) 1,148,017 705,749 1,053,701 3,004,844 3,114,852
Ore Mined
grade
(grams/tonne) 1.47 2.26 1.49 1.96 1.47
Total Waste
Mined
(tonnes)
incl
pre-strip 13,591,306 12,369,452 9,921,061 37,123,550 30,818,559
Mill Feed
(dry milled
tonnes) 1,396,186 1,399,024 1,409,432 4,225,338 4,172,892
Mill Feed
Grade
(grams/tonne) 1.38 1.42 1.23 1.52 1.25
Recovery (%) 77.6% 80.3% 81.7% 79.9% 78.0%
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- Table 3 -
Reefton Operating Statistics
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Reefton
Goldfield Q3 Q2 Q3 YTD YTD
Operating Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
Statistics 2009 2009 2008 2009 2008
-------------------------------------------------------------------------
Gold produced
(ounces) 21,955 23,092 17,427 62,718 53,222
Total Ore Mined
(tonnes) 373,185 320,333 328,043 1,031,301 954,477
Ore Mined grade
(grams/tonne) 2.45 2.44 2.20 2.48 2.17
Total Waste
Mined
(tonnes) incl
pre-strip 2,846,396 2,690,228 2,723,273 8,724,374 9,127,892
Mill Feed (dry
milled tonnes) 309,762 308,196 313,321 930,860 873,559
Mill Feed Grade
(grams/tonne) 2.55 2.71 2.51 2.59 2.45
Recovery (%) 81.5% 81.0% 82.8% 81.1% 81.2%
Gold held in
concentrate at
period end
(ounces) 1,142 3,609 2,910 1,142 2,910
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DEVELOPMENT
Didipio Gold & Copper Project (
Development at the Didipio Gold and Copper project in Luzon
During the quarter three lost time injuries (LTI's) occurred at the project. These were as a result of injuries sustained following a vehicle roll over during a security patrol.
Throughout the care and maintenance period, the Company has continued to fulfill all its community and social commitments relating to the project. Community activities during the quarter focused on the continued financial support provided to the Didipio community under a Memorandum of Agreement (MOA) with the Didipio Community Development Association Inc. (DCDAI). Funding for this MOA contributed to the construction of a new community hall facility, in addition to the ongoing support for the local school to cover the salary costs of additional teachers. The construction of two floodway bridges was completed to provide safe river crossings for the local community, particularly during high rainfall periods. The local municipal council undertook the project using local labor and equipment funded by OceanaGold.
The Company continued to work in partnership with municipal health units and the municipal and provincial governments in the region to improve access to medical care in remote parts of Luzon. Three medical missions were held in local communities throughout Nueva Viscaya and Quirino provinces during the quarter with hundreds of patients treated for various medical and dental needs.
EXPLORATION
The Company successfully raised sufficient funds during the last quarter to finance a focused brownfields exploration programme in
Total exploration expenditure for the quarter was
Macraes Goldfield (Macraes and Frasers mines)
Recruitment of additional staff, including two exploration geologists and a second field technician took place as a part of the ramp-up of the brownfields exploration programme commencing during the quarter.
Seven drill holes were completed as part of an expanded diamond drill twinning programme within a potential cut-back to the Round Hill pit. All holes successfully sampled through the Hangingwall Shear to the Footwall Fault and early assay results indicate strong correlation with the adjacent RC holes completed previously. Two more holes are expected to be completed during early Q4 followed by a full review of the programme results.
Drill planning is well advanced on six surface drill holes down-dip of the Frasers Underground mine targeting Panel 3. A similar number of drill holes are also planned down-dip of the Round Hill orebody. Additional drill rigs are scheduled to arrive onsite during Q4 for these programmes.
Compilation of regional soil results across the northern strike extension of the Hyde-Macraes Shear Zone (HMSZ) has identified a number of geochemical anomalies ready for targeted trenching and drilling in Q4 and into H1 2010.
Development of the Frasers underground exploration drilling drive has progressed well. To date, two diamond drill holes have been completed from the exploration drive, and drilling targeting down-dip extensions of Panel 2 will continue through into 2010.
A Panel 2 Deeps preliminary resource estimate has been completed and was reported on
Reefton Goldfield
The exploration team at Reefton has also been bolstered to accelerate the exploration programme with the addition of three exploration geologists. The ensuing programme will augment existing exploration with data review, detailed relogging of existing drill core and interpretation.
The major geological review and structural analysis of the goldfield continued during the quarter with a structural geologist contracted to focus solely on this initiative. This programme will continue in Q4 and into 2010 and is expected to identify additional in-pit and near-mine targets at Reefton. As a part of this programme, the Company intends to reconstruct historical underground workings in a 3D format from archived data to facilitate regional structural interpretation.
The regional stream sediment sampling programme discussed in the Q2 report continued during the quarter, with the programme expected to be completed in early 2010. Results from this programme will assist with drill hole targeting in 2010.
The drilling programme over the next six months at Reefton is expected to focus on three key areas: 1) deep extensions of the Globe Progress, General Gordon and Empress ore bodies with a view to underground mining; 2) an infill reverse circulation drill programme at the Souvenir deposit for improved resource definition in preparation for mining in 2010 and 3) high-grade targets that are near-surface and along strike.
Exploration activities in the
Preliminary work commenced on the six Didipio regional exploration permits that were received late in the second quarter. Community relations, stream sediment sampling and mapping programmes were all undertaken in the quarter. Assay results from the sampling programmes are expected in Q4 with followup fieldwork studies to be planned, based on this data.
FINANCIAL SUMMARY
The table below provides selected financial data comparing Q3 2009 with Q2
2009 and Q3 2008.
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Q3 Q2 Q3 YTD YTD
Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
2009 2009 2008 2009 2008
STATEMENT OF OPERATIONS $'000 $'000 $'000 $'000 $'000
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Gold sales 59,928 55,010 54,038 170,208 169,369
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Cost of sales, excluding
depreciation and
amortisation (32,972) (31,456) (39,658) (86,770) (115,611)
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General & Administration (2,512) (930) (3,784) (5,497) (12,377)
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Foreign Currency
Exchange Gain/(Loss) 35 (154) 8,367 (6) 330
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Other expense/income (54) 14 28 6 101
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Earnings before
interest, tax,
depreciation &
amortisation (EBITDA)
(excluding gains/
(losses) on
undesignated hedges) 24,425 22,484 18,991 77,941 41,812
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Depreciation and
amortisation (18,199) (15,403) (11,420) (47,075) (37,674)
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Net interest expense (3,938) (3,337) (4,823) (10,639) (14,163)
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Earnings/(loss) before
income tax and gains/
(losses) on
undesignated hedges 2,288 3,744 2,748 20,227 (10,025)
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Tax on earnings/loss (429) 1,653 58 (2,333) 4,563
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Earnings after income
tax and before gain/
(loss) on
undesignated hedges 1,859 5,397 2,806 17,894 (5,462)
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Release from OCI of
deferred unrealised
gain/(loss) on
designated hedges - - - - 279
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Gains/(losses) on
fair value of
undesignated hedges 17,059 49,597 (19,587) 64,391 (51,489)
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Tax on (gain)/loss on
undesignated hedges (5,118) (14,880) 5,876 (19,317) 15,363
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Net earnings/(loss) 13,800 40,114 (10,905) 62,968 (41,309)
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Basic earnings/
(loss) per share $0.08 $0.25 ($0.07) $0.38 ($0.26)
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Diluted earnings/
(loss) per share $0.07 $0.21 ($0.07) $0.33 ($0.26)
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CASH FLOWS
-------------------------------------------------------------------------
Cash flows from
Operating Activities 21,647 20,399 (2,730) 65,008 27,807
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Cash flows from
Investing Activities (20,572) (17,919) 8,940 (50,063) (87,667)
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Cash flows from
Financing Activities 15,456 (1,198) (30,650) 10,174 (44,610)
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As at As at
Sep 30 Dec 31
2009 2008
BALANCE SHEET $'000 $'000
-------------------------------------------------------------------------
Cash and cash equivalents 40,966 9,711
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Other Current Assets 44,003 35,980
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Non Current Assets 695,201 584,299
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Total Assets 780,170 629,990
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Current Liabilities 110,526 89,105
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Non Current Liabilities 273,912 294,229
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Total Liabilities 384,438 383,334
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Total Shareholders' Equity 395,732 246,656
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RESULTS OF OPERATIONS
The Company reported earnings before interest, tax, depreciation and amortisation excluding gains/losses on undesignated hedges (EBITDA) in Q3 2009 of
Cash costs per ounce in the third quarter were higher than Q2 2009 due to lower production which in part was a reflection of the planned mining sequence and slightly lower recoveries. US$ costs also increased due to the exchange rate impact and higher maintenance costs were offset in part, by lower operating costs for diesel and power compared to the prior year.
Sales Revenue
-------------
Gold revenue of
Gold sales volume for Q3 2009 was 71,492 ounces which was higher than Q3 2008 by 13.9% and 5.1% lower than last quarter. Production was constrained due to changes in the mining sequence and lower recoveries of 78.3% compared to the prior quarter.
The average gold price received per ounce was
Undesignated Hedges Gains/Losses
--------------------------------
Unrealised gains and losses calculated on the 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 the adjustments made to take account of the delivery of gold into the hedge book as the derivative liability was released. These valuation adjustments, as at
The derivative instruments used to manage the impact of movements in gold prices are summarised below under "Current and Non-current Derivative Liabilities".
Operating Costs & Margins
-------------------------
Cash costs per ounce sold were
The cash margin of
Administration costs of
Depreciation and Amortisation
-----------------------------
Depreciation and amortisation charges are calculated on a unit of production basis totaling
The depreciation and amortisation charges include amortisation of mine development and deferred waste stripping costs and depreciation on equipment.
Net Interest expense
--------------------
The net interest expense of
Despite low interest rates, the stronger Australian and
Net earnings/(loss)
-------------------
The Company reported a net profit of
As a result of the increase in average gold price received in the period, the EBITDA before fair value adjustment for the period increased marginally compared to Q2 2009.
DISCUSSION OF CASH FLOWS
Operating Activities
--------------------
Cash flows from operating activities for Q3 were
Investing Activities
--------------------
Investing activities were comprised of expenditures for pre-stripping and sustaining capital for the
Cash used for investing activities totaled
Financing Activities
--------------------
Financing cash flows totaled
DISCUSSION OF FINANCIAL POSITION AND LIQUIDITY
Company's funding and capital requirements
For the quarter ended
When combined with cash holdings the Company is expected to generate sufficient free cash flow from operations to meet all of its debt obligations as they become due over the next 12 months.
Capital commitments
OceanaGold's capital commitments as at
-------------------------------------------------------------------------
Payments due by period as at September 30 2009
-------------------------------------------------------------------------
less than
Total 1 year 1 - 2 years 2 - 3 years
$'000 $'000 $'000 $'000
-------------------------------------------------------------------------
935 913 22 -
-------------------------------------------------------------------------
Financial position
Current Assets
--------------
Current assets have increased by
Non-Current Assets
------------------
During the quarter, non-current assets increased from
Current Liabilities
-------------------
Current liabilities increased
Non-Current Liabilities
-----------------------
Interest bearing loans and borrowings increased by
Current and Non-Current derivative liabilities
----------------------------------------------
OceanaGold holds certain derivative instruments that were intended to manage the impact of movements in the spot gold price. Currently instruments held include undesignated forward gold sales contracts for 122,340 ounces (Jun 2009: 144,255 ounces) at NZ$773, undesignated gold put options for 103,434 ounces (Mar 2009: 124,788 ounces) with an average exercise price of NZ$1,000 and undesignated gold call options (sold) for 104,024 ounces (Jun 2009: 104,024 ounces) with an average exercise price of NZ$1,062. A summary of OceanaGold's mark to market adjustment on derivatives is:
-------------------------------------------------------------------------
Sep 30 Dec 31
2009 2008
$'000 $'000
-------------------------------------------------------------------------
Current Assets
Gold put options 184 1,493
---------------------
Non Current Assets
Gold put options 190 1,997
---------------------
Total Assets 374 3,490
---------------------
-------------------------------------------------------------------------
Sep 30 Dec 31
2009 2008
$'000 $'000
-------------------------------------------------------------------------
Current Liabilities
Gold forward sales contracts 44,474 46,949
Gold call options (sold) 20,325 1,831
---------------------
64,799 48,780
---------------------
Non Current Liabilities
Gold forward sales contracts 11,807 45,708
Gold call options (sold) 7,365 34,358
---------------------
19,172 80,066
---------------------
Total Liabilities 83,971 128,846
---------------------
Shareholders' Equity
--------------------
A summary of OceanaGold's movement in shareholders' equity is set out
below:
-------------------------------------------------------------------------
Quarter ended
Sept 30 2009
$'000
-------------------------------------------------------------------------
Total equity at beginning of financial period 326,456
---------------------
Profit/(loss) after income tax 13,800
Movement in other comprehensive income 35,711
Movement in contributed surplus (175)
Equity raising 19,940
---------------------
Total equity at end of financial period 395,732
---------------------
Shareholders' equity has increased to
Capital Resources
-----------------
As at September 30, 2009 share and securities summary
Shares outstanding 185,880,075
Options outstanding 2,967,759
As at December 31, 2008 share and securities summary
Shares outstanding 161,634,849
Options outstanding 4,019,988
Corporate options* 30,321,702
* Lapsed January 1, 2009
As at October 29, 2009 share and securities summary
Shares outstanding 185,880,075
Options outstanding 2,967,759
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 2008 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 (including exploration, evaluation and development expenditure) 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.
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 tangible 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 certain of the key assumptions.
Asset Impairment Evaluations
The carrying values of exploration, evaluation, development costs 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 average cost of borrowing.
Derivative Financial Instruments/Hedge Accounting
The consolidated entity benefits from the use of derivative financial instruments to manage commodity price and foreign currency exposures.
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 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.
ESTIMATES, RISKS AND UNCERTAINTIES
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.
In addition, 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; 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.
FOREIGN CURRENCY TRANSLATION
The consolidated financial statements are expressed in
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 income. Differences arising from these foreign currency translations are recorded in shareholders' equity as a cumulative translation adjustment until they are realised by a reduction in the net investment.
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 recognised in income, with the exception of depreciation and amortisation which is translated at the historical rate for the associated asset. Exchange gains and losses and currency translation adjustments are included in income.
CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION
There have been no material changes from the accounting policies of FY2008.
Adoption of new accounting policies
Mining Exploration Costs
On
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
OceanaGold Corporation has commenced transition planning and conversion to IFRS, including assessment of the impact on its accounting systems and financial statements. The conversion project scope includes review of project structure and governance, resources, analyses of key GAAP differences, policies and implementation plan. The status of elements of the conversion project is as follows:
Project Structure and Governance
A steering committee and implementation team has been identified and management will update the audit committee on a quarterly basis.
Assessment and Diagnostic
An initial diagnostic of key areas for which adjustments will be required and accounting policy choices available upon adoption of IFRS will be completed in 2009. This review phase will address the impact on accounting, information technology, internal controls and disclosure.
Design, Planning, Valuation and Solution Development
An impact analysis will be performed and draft financial statements and disclosures will be prepared with an implementation plan. During this phase the impacts will be reliably quantified with judgements based relative to
Implementation
Implementation of the required changes necessary for IFRS compliance will include approval of accounting adjustments, policies and exemptions (as applicable).
A high-level diagnostic assessment phase will be conducted in the fourth quarter of 2009. At this stage the impact on the financial position and future results of the conversion cannot be reasonably determined so no indication or estimate is available at this time.
Business Combinations, Consolidated Financial Statements and Non-Controlling Interests
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
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
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited information for each of the eight quarters ended
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Sep 30 Jun 30 Mar 31 Dec 31
2009 2009 2009 2008
$'000 $'000 $'000 $'000
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Gold sales 59,928 55,010 55,270 47,845
EBITDA (excluding undesignated
gain/(loss) on hedges) 24,425 22,484 31,032 24,294
Earnings/(loss) after income
tax and before undesignated
gain/(loss) on hedges (net
of tax) 1,859 5,397 10,639 1,917
Net earnings/(loss) 13,800 40,114 9,054 (13,426)
Net earnings per share
Basic $0.08 $0.25 $0.06 ($0.08)
Diluted $0.07 $0.21 $0.05 ($0.08)
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Sep 30 Jun 30 Mar 31 Dec 31
2008 2008 2008 2007
$'000 $'000 $'000 $'000
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Gold sales 54,038 53,068 62,263 36,615
EBITDA (excluding undesignated
gain/(loss) on hedges) 18,991 1,131 21,690 9,057
Earnings/(loss) after income
tax and before undesignated
gain/(loss) on hedges (net
of tax) 2,806 (12,051) 3,783 (5,880)
Net earnings/(loss) (10,905) (19,248) (11,156) (27,162)
Net earnings per share
Basic ($0.07) ($0.12) ($0.07) ($0.17)
Diluted ($0.07) ($0.12) ($0.07) ($0.17)
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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
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 standardised 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 amortisation (EBITDA) is one such non-GAAP measure and a reconciliation of this measure to net earnings/(losses) is provided on page 11.
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 amortisation, is provided on the next page.
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Q3 Q2 Q3 YTD YTD
Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
2009 2009 2008 2009 2008
$'000 $'000 $'000 $'000 $'000
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Cost of sales,
excluding
depreciation
and amortisation 32,972 31,456 39,658 86,771 115,611
Depreciation and
amortisation 18,199 15,403 11,420 47,075 37,674
Total cost of
sales 51,171 46,859 51,078 133,846 153,285
Add sundry
general &
administration
adjustment 850 415 552 1,569 2,090
Less selling costs (429) (110) (114) (632) (362)
Total operating
cost of sales 51,592 47,164 51,516 134,783 155,013
Gold Sales from
operating
mines (ounces) 71,492 75,319 62,753 227,904 189,308
Total Operating
Cost ($ per
ounce) 722 626 821 592 818
Less Non-Cash
Cost ($ per
ounce) 249 203 181 204 198
Cash Operating
Cost ($ per
ounce) 473 423 640 388 620
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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
INTERNAL CONTROL OVER FINANCIAL REPORTING
As at
FULL COMPANY RELEASE
To view the full company release, including images please refer to the company's website www.oceanagold.com
For further information: Mr. Darren Klinck, +61 39656 5300, www.oceanagold.com
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