OceanaGold takes $US85.5m impairment as gold price falls

OceanaGold Corp has declared a $US70.5 million net loss in the second quarter, reflecting a $US85.5 million non-cash writedown in the carrying value of its New Zealand gold mining operations.

The result for the three months ended June 30 reflects falling gold prices, which have seen the company announce plans to reduce production from its New Zealand mines, including the mothballing of its Reefton mine from mid-2015.

That move alone will strip $NZ40 million to $NZ45 million of future capital costs from its plans, and is part of a proposal to cut costs by $US100 million or more in the next 18 months.

"The group identified two indicators of potential impairment. Firstly, the trading price of the company's shares declined such that the company's market capitalisation was below the carrying value of net assets," OceanaGold says in statements issued to the New Zealand, Australian and Toronto stock exchanges, where it is listed.

"Secondly, market prices of gold declined significantly to below levels used in the company's forecasts, resulting in a decision to initiate a potential two-year reduction in the previously announced mine life at Reefton."

The quarter includes the first period of full production from the Didipio gold and copper mine in the Philippines, where costs of mining were $US586 an ounce higher than returns from 11,086 ounces of gold and 5073 tonnes of copper sold, while cash costs in the New Zealand unit were $US918 per ounce on gold sales of 59,620 ounces.

Total sales from all operations in the second quarter came in at $US131.2 million, up from $US95.6 million the previous quarter and $US86.7 million in the same quarter the previous year, while on the same basis production costs, depreciation and amortisation rose to $US80.4 million, compared with $US39.9 million and $US57.5 million, reflecting the inclusion of Didipio for the first time.

Earnings before interest, tax, depreciation and amortisation for the quarter was $US42.5 million, against $US47.0 million the previous quarter and $US47.1 million in the same period the previous year.

Ebitda for the half year was $US89.6 million, compared with $US48.9 million for the first half last year.

The declared net loss for the half after writedowns, foreign exchange losses and tax was $US63.4 million, compared with $US3.1 million in the first half of last year.

Cashflows from operating activities were down substantially at $US9.9 million for the quarter, compared with $US21.4 million the previous quarter and $US20.9 million in the same quarter last year, reflecting a the average price per ounce of gold for the latest quarter of $US1422, compared with $US1632 the previous quarter and $US1613 in the same period a year earlier.

Cash and cash equivalents on hand at June 30 stood at $US17.9 million, compared with $US96.5 million at balance date, December 31.

The company said in its statement it was continuing to "look for additional opportunities to optimise our business" and that "Didipio will continue to drive down our cost per ounce whilst increasing our production profile".

"With cashflows increasing over the next few years and with significant cost reductions at our New Zealand operations, the company is well positioned for the new economic environment in the gold industry," it says.

(BusinessDesk)