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http://nzresources.com/showarticle.aspx?id=1718&gid=30001718

A year of pushing ahead on several fronts for OceanaGold
Simon Hartley � 17 January 2011



Premier New Zealand gold producer OceanaGold Corporation is this year looking to increase the mine-life of its mainstay operations and again boost its estimated gold reserves across both its Macraes site in East Otago and at Reefton on the West Coast.

While strong global spot gold prices will more than offset rising production costs for Oceana, the crucial cash costs per ounce are forecast to rise this year in a range of 57% to 67% -- from $US411/oz last year to as much as $US685/oz ($NZ538 to $NZ897/oz).

Oceana has set several goals this year, intending to kick-start its mothballed gold-copper Didipio development mine in the northern Philippines, while expanding the mining rate of its New Zealand open cast operations and extend its overall mine-life expectations.

Craigs Investment partners broker Peter McIntyre said the three key points for Oceana this year will be the maintenance of global spot gold prices, successfully extending the mine life and maintaining profit margins through control of cash costs.

�They will have to be prudent and not blow-out on their cash costs; which is not an exact science,� McIntyre said.

Because Oceana has already publicly signalled a possible increase of cash costs by up to 67%, the market has been given a warning and �reasonable explanation,� but Oceana will need to deliver on its financial forecasts.

�Its share price could come under pressure this year, having rallied so strongly. They will need to keep the good news coming,� he said.

Forsyth Barr broker Suzanne Kinnaird saw several positive features in Oceana's plans for the year ahead, though not entirely painless.

�The rising [gold production] costs are a direct result of the company's decision to extend mine life and are intended to provide short term pain for long term gain, the strong gold price enabling them to do this comfortably," she said.

Oceana has forecast it faces increased costs to production this year as an extra 12 M tonnes of overburden and ore will be moved at both sites -- totalling 79 Mt �while gold production will be slightly down.

The multiple ploy of increasing NZ ore production and re-igniting Didipio's development will be reflected in increasing cash costs per ounce.

Oceana chairman Jim Askew said in a market update in late-December that in early-February Oceana expects to increase and further expand its estimated gold reserves across NZ, for the second consecutive year -- having in November 2009 increased resource estimates by more than 40%.

�The decision to increase the mining rates at both the Macraes and Reefton open cut mines is important to ensure a stable operating platform over a longer mine life in New Zealand," he said.

Oceana's production expectations for calendar 2011 are slightly down on the previous year, from 270,000 - 290,000 to 260,00 - 280,000 oz. It reported a record more than 300,00 oz in 2009.

Mining at Macraes this year would increase 13% from 52 Mt to 59 Mt while at Reefton there would be a 25% increase from 15 Mt to 20 Mt mined.

To achieve this Oceana was making a multi-million dollar investment in a new excavator and two new trucks for Macraes and other equipment for Reefton.

�This is part of an overall strategy to ensure that the NZ business remains robust for years to come and that the mine life increases out to seven to eight years," Askew said.

Cash costs for Oceana during calendar year were $US411/oz. Askew expected cash costs to increase this year to around $US645 - $US685/oz, and decline slightly in 2012 but to �decline significantly� to below $US400/oz in 2013, when gold and copper production from the Philippines contributes to averaging out costs across the company.

McIntyre said Didipio development �has been a long time in the coming� and remained an important project for Oceana, copper has been enjoying buoyant prices and would add diversity to the portfolio.

Askew acknowledged the increased cash costs associated with the higher mining rate, but diesel and labour costs were also expected to rise and the strengthening $NZ against the us would also contribute to increased costs.

It was planned that at Didipio this month detailed engineering designs of infrastructure and the processing plant would restart, with access road upgrades undertaken soon.

A general manager of operations at Didipio was being sought, who would oversee recruitment of a Filipino operating team who would be trained at Macraes, then return to the Philippines once Didipio commissioned.

Ms Kinnaird said that following the disappointing delays to Didipio, which included its mothballing for more than two years due to lack of finance, it would be a �real positive� for Oceana to get development �back up and running�.

She highlighted that new chief executive Mick Wilkes, formerly of OZ Minerals, is due to start with Oceana, and analysts will be watching to see how his influence shows through in company operations.

*Simon Hartley is a senior business reporter for the Otago Daily Times.