OGC reported a clean set of CY12 financials with operating EBITDA inline and good translation into operating cash-flow. Capex however was higher than expected, which we attribute to higher operating costs capitalized during Didipio commissioning in DecQ12. With Didipio rampup commentary remaining positive and production guidance reaffirmed, we continue to see OGC as a re-rating candidate in CY13. ? NPAT $21m vs JPM $17m, with minor differences driven by D&A, other income and net interest; mine EBITDA of $159m in-line with JPMe $159m. OGC reported strong cash-flow translation, with operating cashflow of $115m marginally lower than JPM $120m due to net working capital movements. Overall, a clean result operationally.
? Q4 capex of $81m higher than JPM $40m, with the cash out-flow attributable to higher operating costs capitalized for Didipio commissioning than we expected. While we expect this to drive a small (~$10-15m) increase in the total capex budget of $247m ($220m + $27m working capital), this will be somewhat offset by capitalized revenue during the commissioning phase in Q1. With Didipio construction essentially complete and ramp-up commentary remaining positive, we do not forecast any significant capex overruns in 1H13. ? Group guidance of 285-325koz Au, 15-18kt Cu at unit costs of $650- 800/oz reaffirmed, with OGC responding to the footwall movement at Macaes in Q1 by developing new mining schedules so that guidance remains unchanged. We expect a weak Q2 as high-grade ROM stockpiles are consumed, but production should pick up in 2H as highgrade inventory is rebuilt over the year. ? Retain Overweight – we continue to see OGC as a re-rating candidate throughout CY13 as the company hits commissioning and production milestones at Didipio.
Key points: ? NPAT of $21m in-line with JPMe $17m – with differences driven by D&A, other income and net interest. Mine EBITDA of $159m was in-line with our $159m forecast. Mining gross profit of $68m compared to JPM forecast of $64m. ? Good operating cash-flow translation, $115m vs JPMe $120m – with the difference due to net change in working capital movement ($18m vs JPM $11m). ? Capex of $282m + 17% vs JPM $240m – with a higher than expected cashoutflow associated with Didipio. We understand this is due to higher operating costs during the commissioning and ramp-up period, which we expect will increase the total capex budget for the asset. This will be somewhat offset by capitalized revenues during Q1 given the asset is in production already. With Didipio construction essentially complete and ramp-up commentary remaining positive, we do not forecast any major capex overruns in 1H13 ? No change to group guidance – OGC has responded to the footwall movement at Macraes in Q1 by developing new mining schedules so that guidance remains
Recommendation and Price Target We maintain our Overweight Recommendation and A$3.70/sh price target. Our A$3.70/ sh price target is based on our Dec-13 SOTP NPV of A$3.75/sh, which includes A$1.73/sh for New Zealand assets using a 10% WACC and A$1.76/sh for Didipio in the Philippines using a 12% WACC to reflect higher sovereign risk. Our DCF also includes A$0.15/sh for corporate and A$0.12/sh for Projects. Key risks to our Overweight recommendation include: Philippines sovereign risk – any adverse developments including a revision of the mining code, local opposition or violence in the country could have an impact on the OGC share price, including sentiment impact from regional developments. Commissioning risk – the commissioning of the Didipio project is both a potential catalyst and risk for OGC. The commissioning phase is one of the higher risk periods for a mine given the lack of operating history, and potential issues that may arise. Ore body risk – the behavior of an ore body compared to expectations is often the biggest risk facing a mining company, with differences potentially impacting asset valuations. Production risk – all mining companies are exposed to production risk, which is susceptible to swings and roundabouts due to grade, processing rates (including unplanned shutdowns), and weather disruptions. Capital cost blowouts – Didipio is near completion with milling commencing recently. As such, we see reduced risk of a further capital cost blowout in addition to the increase announced in July-12 (from US$185m to US$220m).
OGC Price at posting:
$2.44 Sentiment: None Disclosure: Held
