Plunging gold price prompts OceanaGold Corp to put off production at its Reefton mine

OceanaGold Corp, whose share price has plunged 59 percent in the past three months, will put off production at its Reefton mine, putting it into care and maintenance in mid-2015 until the price of gold improves.

The move amounts to a two-year reduction in the mine schedule and will cut production by 110,000 ounces between 2015 and 2017 to achieve “significant cost and risk reductions” amid a plunging gold price, which has dropped by a quarter to US$1,200.15 an ounce, the company said. The plan will strip out between $40 million and $45 million of capital spending over the next two years.

“The decline in the gold price over the past two months has eroded much of the profitability at Reefton which has led to this revised plan,” managing director Mick Wilkes said in a statement. “While we are hopeful for an improved gold environment, we have taken the necessary steps to ensure a sustainable and profitable operation at Reefton over the next two years.”

The Melbourne-based gold miner extracted 12,447 ounces from the Reefton site in the first three months of the year, and produced 48,139 ounces of gold from Macraes field in Otago and 6,877 ounces from Didipio in the Philippines.

OceanaGold has entered into a hedging programme for the next two years covering estimated production of 115,650 ounces of gold to offset the risk of the lower production. By buying a series of gold put options over that production it will receive at least NZ$1,600 per ounce, and at most NZ$1,787 an ounce. At today’s spot price of US$1,200.15 and the local currency buying 77.90 US cents, the gold price translates to NZ$1,539.84.

The company said it intends to keep its current access arrangement with the Department of Conservation through to 2019, and begin rehabilitation of areas that aren’t expected to be disturbed in the future. Plant and machinery will be kept in place during the care and maintenance phase.

OceanaGold is undertaking a technical study at the Blackwater project 15 kilometres south of the Reefton mine, and expects it will get the go-ahead as early as 2014/15 if it shows “positive economics.”

The triple-listed shares rose 4.5 percent to $1.40 on the NZX yesterday, having plumbed a three-and-a-half year low a day earlier.

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