OceanaGold raised to ‘accumulate’ by Forsyth Barr as share decline outpaces fall in gold price

OceanaGold Corp. [NZSX: OGC], the worst performing stock on New Zealand's benchmark index this year, was raised to 'accumulate' from 'hold' by brokerage Forsyth Barr after a decline in the share price exceeded softer gold prices.

OceanaGold's share price has fallen about 30 percent since the end of August, outpacing a 17 percent decline in the ASX Gold Index, Forsyth Barr analyst Andrew Harvey-Green said in a research note published yesterday. The stock today fell 1.2 percent to a three-month low of $1.65, taking its decline this year to 51 percent.

OceanaGold's plan, announced yesterday, to buy the 80 percent of Pacific Rim Mining Corp that it doesn't already own for C$10.2 million in shares is a relatively cheap option to gain access to Pacific Rim's El Dorado gold-silver deposit in El Salvador, Harvey-Green said. Arbitration with the El Salvador government to allow mining to proceed is probably a year away from a decision and OceanaGold's additional "financial clout" will be welcome, Harvey-Green said.

"Overall, we believe the transaction will be positive for OceanaGold," Harvey-Green said. "It is gaining a low-cost option over another quality project, albeit it has some challenges."

Forsyth Barr is not including the proposed takeover in its valuation given uncertainties over arbitration and the need for shareholder approvals.

The brokerage lowered its 12-month target price for the stock by 20 cents to $2.05 and pulled back its forecast for 2014 earnings by 15 percent, citing a lower gold price and a rise in the local currency.