OGC is a stock with quality operations that is resolving...

OGC is a stock with quality operations that is resolving financial issues.

Around 100,000 ounces of 2009 production is hedged at $NZ773 against a current price of $NZ1500. Around half of the 2009 hedge has been delivered this year and the operations are generating cash of $US43 million for the half year. On a normal continuation OGC will deliver the 2009 hedges and generate $US80 million cash.

In 2010 there will be around 100,000 ounces unhedged, 100,000 onces at the same price as 2009 - $NZ773 and an additional 100,000 ounces at $NZ1062. Thus the revenue drop will be a loss of $NZ1,500 - $NZ1062 = $NZ440 x 100,000 = $NZ44 million or $US30 million. Based on 2009 estimates of $US80 million even with this high 2010 hedging OGC will still generate cash.

Importantly, there will be a substantial cash carryover from 2009 and the current capital raising of $A24 million will enable development drilling spending without reducing that cash reserve.

It is not that 2010 will look that great on a P+L basis for OGC. The attraction of OGC is on a 12 month view into mid 2010 when the ability of OGC to handle the hedging becomes clearer to the market.

Other issues for investors to ponder is the Didipio scenario which could be seen as an asset or a liability and the convertible note redemption.

Still OGC is a current 300,000 ounce producer with all that sunk capital and a market cap of $A200 million + nett debt of $A180 million for an enterprise value of say $A400 million - about $A130 per production ounce.