1/5/2015 — Gold
OceanaGold to acquire Newmont’s Waihi operations
By Simon Hartley
New Zealand’s premier gold miner OceanaGold Corporation (ASX, NZX & TSX: OGC) plans to purchase its only hard rock gold mining competitor in New Zealand – the North Island operations of Newmont Mining Corporation at Waihi at the base of the Coromandel Peninsula.
The agreement is for OceanaGold to purchase the Waihi leases for $US101 million ($NZ132.3 M) which may prove to be a lifeline for OceanaGold’s operations to continue at Macraes for several years.
The combined operations will this year employ about 1,000 staff in NZ, with overall gold production next calendar year potentially well beyond 400,000 ounces; including OceanaGold’s Philippines contributions.
In the face of rising costs and gold price volatility, OceanaGold recently shed almost 300 staff and contracting jobs from Macraes in Otago, and at Reefton on the West Coast, as part of a $100 M efficiency drive following the gold price nosedive.
OceanaGold’s chief executive Mick Wilkes said Waihi represented a unique opportunity to acquire a high-quality asset which had demonstrated an ability to repeatedly extend its mine life in the past 27 years “in what is still a very prospective, high-quality goldfield.”
“We've long believed that Waihi represents a strong strategic fit within OceanaGold. We're excited about the prospect of acquiring it and welcoming its experienced workforce to our team,” he said.
Wilkes said there would be several synergies from the acquisition, including underground mine management, expertise and experience, equipment and procurement from suppliers.
The purchase is subject to gaining regulatory approvals and will be paid for from a mix of cash reserves and drawing down of existing debt facilities - the acquisition to contribute to OceanaGold's balance sheet from July 1.
The Frasers underground mine in East Otago recently got a mine life reprieve, being extended out to 2016 and the open pit operations may also yet be extended beyond 2017, but a cloud still hangs over Reefton operations.
When asked, Wilkes said the Waihi acquisition would not offset the planned mothballing of the Reefton open pit operations, at the end of 2015.
Each mine in OceanaGold's expanding portfolio had to justify its production costs, Wilkes noting he “didn't expect any significant long term recovery,'' in the price of gold, which has undermined Reefton's viability for the past two years.
All operations at Waihi were expected to continue as “business as usual,” with its gold continuing to be smelted into rough “dore” bars, for export and minting.
Wilkes said a review of operations would take place after the June, with expectations the workforce would be unchanged and capital expenditure, such as that on developing the underground Correnso mine, would be financially backed by OceanaGold.
Exploration spending above and below ground would continue at Waihi, at around $5 M per annum, which would include gold veins near the old, at present closed, Martha pit.
Wilkes had set a “cut off” selling price of about $US1,250/oz for New Zealand operations in March, and said yesterday that this rule of thumb was unchanged. However, he believed Waihi's overall cost of production could reduce overall NZ operation costs in the future.
Newmont operating subsidiary Newmont Waihi Gold has a staff of 340 from operations that were acquired early in 2002 when the American gold giant acquired Australia’s then biggest gold miner Normandy Mining Ltd, beating South Africa’s AngloGold Ashanti to the punch.
Soon after that acquisition, Newmont courted at least two Canadian junior gold miners interested in buying the Waihi operation, considered by some Newmont executives then as too small to retain.
However, Newmont had a change of mind and retained the operations and invested strongly in maintaining the community relations that Normandy had fostered in Waihi.
The flagship remained the Martha open cut mine which had been developed in 1988 over the historic Martha underground workings which had closed in the early 1950s. Newmont Waihi Gold went on to develop the Favona and Trio underground mines and, with these now closed, is developing the Correnso underground mine from near the Martha pit, which suffered a wall slip recently and has been temporarily closed.
Waihi has been producing up to 100,000 oz of gold and about three times more silver through in 2014 output was reportedly about 131,500 oz gold and 482,000 oz silver.
The acquisition may queer the pitch for struggling junior explorer Antipodes Gold Ltd (TSX-V & NZAX: AXG) which has two joint ventures with Newmont in the Waihi district and is planning to undergo a restructuring linked to Aorere Resources Ltd (NZX: AOR).
The plan is for Antipodes to undertake a reverse takeover of AOR associated company Chatham Rock Phosphate Ltd (NZAX: CRP) and an attraction for that company is that the Antipodes link (nominally to change its name to Antipodes Phosphate) would provide a Toronto venture exchange listing.
Antipodes plans to sell its Waihi assets – 30% of Waihi West near the Correnso development and the WPK joint venture prospect further away where a large epithermal system has been outlined by Newmont to Aorere.
Antipodes still owes for some of the recent exploration commitments to Newmont which would have a first right of refusal should Antipodes change its colours. That then brings OceanaGold into the corporate chess game.
- additional reporting by Ross Louthean
*Simon Hartley is senior business reporter and assistant chief reporter for the Otago Daily Times.