OceanaGold says Didipio costs blow out by $US35m

BUSINESSDESK: Macraes goldfield operator OceanaGold said its Didipio gold and copper project in the Philippines is now estimated to cost $US220 million – $US35 million more than the company announced in June last year.

OceanaGold also said it has credit approvals from a group of large multi-national banks for a three-year $US220 million credit facility, subject to final documentation.

The main reasons for the Didipio cost blowout are “associated with increases in engineering design and procurement services, TSF (the tailings storage facility) and infrastructure construction and site support costs”, OceanaGold said.

“Working capital requirements on start-up are expected to be an additional $US27 million.”

At June 30, the company had spent $US161 million on the project with a further $US24 million committed in contracts. Cash on hand was $US73 million.

“The Didipio project is going extremely well. We remain on track to achieve our goal set out in June last year to commence commissioning” in the December quarter this year, managing director Mick Wilkes said.

“The increased capital cost for the project is consistent with industry cost pressures today, particularly for engineering design services,” he said.

“We also made the very deliberate decision to engage with high-quality contractors in the Philippines which cost more money to ensure the project was built to a high standard and on time.”

In June last year, Mr Wilkes said Didipio had a “very robust” capital payback of one to two years, based on the then estimated capital costs of $US185 million.

Construction at the Didipio project is more than 70% complete and is fully financed, he said today.

“Recruitment for Didipio permanent operations team and operations readiness plans are well advanced” with about 60% of the required positions already filled.

Key outstanding items are the delivery of seven power generators and electrical switch rooms, but all power equipment should be at the site over the next four to six weeks.

“Mining of the Didipio orebody has commenced on schedule this month in readiness for commissioning in the fourth quarter and to build ore stockpiles for production in 2013.”

The credit facility will provide additional liquidity if necessary to repay the $A57.8 million of OceanaGold's convertible bonds maturing in December 2012, repay the $A110 million of convertible bonds maturing December 2013 and provide $US50 million in working capital, Mr Wilkes said.

Securing the facility is “a vote of confidence in OceanaGold and allows us to focus on successfully commissioning Didipio and generating strong cashflows from our operations in 2013”.

In June last year, Mr Wilkes said the December 2012 bonds would be repaid from cashflow.

OceanaGold shares, which are dual-listed on the ASX and NZX, are up 3 cents at $2.40. While that is up from the year-low at $2.18 in May, the shares have been trending down from $5.20 in December 2010.