2010 Financials Solid ? OGC?s adjusted EBITDA of US$141m was 2% ahead of our US$138m forecast. While Q4 gold production of 67koz was lower than anticipated driven by lower than forecast grade and recovery, this was offset by better than expected Q4 cash costs of US$596/oz. 2010 production of 269koz was just shy of the 270-290koz guidance range, while full-year cash costs of US$570/oz was within management?s guidance from October.
First Production at Didipio in 1Q13 ? CEO Wilkes commenced in mid-Jan andspent 10 days in the Philippines visiting Didipio, as well as talking with government officials, senior staff and administrators. Wilkes noted that he was impressed post the visit with expectations of first production in 1Q13 ? in line with our current modeling. Expect a more detailed update to production plans and the resource position during the next several weeks. Wilkes noted that there is no substance or risk in relation to recent media reports concerning previously refuted community issues from 2007. It was further noted that there have been no recent allegations and relationships with local communities remains good and improving.
Earnings Changes ? We have revised earnings forecasts to account for 4Q production and 2010 financials. This has resulted in downgrades driven by revisions to operating costs to account for higher overburden stripping in 2011 and revisions to depreciation estimates. We also incorporate recently published commodity price revisions. While there were no changes to gold, copper forecasts increased which impacts 2013 forwards once the Didipio project comes on stream. We have also adjusted for the equity raising in Oct 2010.
Keep the Buy, Clear Valuation Support ? OGC offers compelling valuation support with the stock currently trading at less than 1x NPV. This represents highly attractive value for a gold stock, and is the cheapest across our gold coverage universe. OGC?s share price currently implies nil value for the Didipio project, an outcome which we think is highly unlikely. We reiterate our Buy recommendation and $5.00 target price.
OGC Price at posting:
$2.82 Sentiment: Buy Disclosure: Held
