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Oxiana unfazed by blowout
Email Printer friendly version Normal font Large font Jamie Freed
October 24, 2007

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IN WHAT has become an annual event, Oxiana is poised to reveal another cost blowout at its $775 million Prominent Hill copper-gold project under development in South Australia.

But perhaps more importantly, given strong commodity prices and heated demand for labour and equipment, the project remains on schedule to produce its first copper and gold in the second half of next year.

Oxiana's managing director, Owen Hegarty, said he would provide the market with a revised cost estimate next week after board members visited the site and received more information.

"I haven't actually seen the final numbers myself," he said. "It's likely to change. Put it that way."

The revised cost estimate would be the third increase announced to the market since Oxiana's 2004 cost estimate of $350 million.

"It's no secret that industry capital costs are under a lot of pressure," a Macquarie Equities analyst, Jim Copland, said. He said a 20 per cent to 30 per cent increase, which could push the project's costs up to $1 billion, would not be a surprise. Last week, Credit Suisse said it expected Prominent Hill would cost $880 million.

Mr Hegarty signalled the latest cost increase should be the final one given Oxiana has signed nearly all of the necessary contracts associated with the project's development.

Prominent Hill will add 104,000 tonnes of copper and 120,000 ounces of gold to Oxiana's annual production from its initial open pit, and the company is studying the construction of a smaller underground mine which could start production in 2011. By 2020, Oxiana might develop an underground bulk-mining operation.

Oxiana said it was on track to meet annual production and cost forecasts at its existing operations in Laos and Australia after reporting its third-quarter production figures. It produced 18,400 tonnes of copper, 41,000 ounces of gold and 35,750 tonnes of zinc during the quarter.

"Production and costs were better than expected across the board," Goldman Sachs JBWere said. "We expect consensus earnings upgrades."

Mr Hegarty said Oxiana had already ordered long-lead time items for its Martabe gold project in Indonesia, even though the feasibility study will not be completed until later this year. The company has pushed back the development of its primary gold project in Laos until it can confirm more resources in the area. It has found 2.2 million ounces of primary gold but wants to confirm 3 million ounces by the end of next year so it can approve the project's development.

Oxiana shares closed 16c, or 4 per cent, higher at $3.83