Oceana reflects on mining's future
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By Simon Hartley on Wed, 5 May 2010
News: Business
Oceana Gold's economic impact on the Otago economy is measured in the tens of millions of dollars each year as it churns through millions of tonnes of East Otago and West Coast ore to extract gold.
Oceana's positive economic impact in Otago reflects the mining industry's overall position on the Government's contentious proposals to open up protected conservation estate land for exploration.
At stake are the regional economic benefits of mining compared with the potentially negative environmental impacts.
Mining is expensive, with Oceana last year extracting about two grammes of gold from each metric tonne of ore processed, shifting about 5.5 million tonnes of ore.
For each ounce produced last calendar year, it cost Oceana $NZ886, and on average it sold each ounce for $NZ1098.
This calendar year, Oceana has forecast its cash costs per ounce to rise to between $915 to $970.
However, Oceana has recently bought back all its forward selling gold contracts which had locked it into pre-determined prices, and can now sell its gold on the global spot market, which has been hovering above
$NZ1530 per ounce in recent months.
The difference in contract and open market prices could add tens of millions of dollars to Oceana's bottom line, Oceana's chief operations officer Mark Cadzow said.
"Now that Oceana Gold is selling on the spot market, as of April 1, depending on the [daily international] gold price, we would expect
an extra $70 million to $80 million would flow to the bottom line per annum, from the Macraes operations," Mr Cadzow said.
Partly processed ore from Reefton, which is a slightly higher grade on average than that from Macraes, is delivered by rail from the West Coast and processed at the Macraes plant.
In an early draft of an independent report being compiled for Oceana by economic forecasters Infometrics, Oceana Gold's economic contribution ranks in the
top 0.5% of New Zealand companies employing one person or more.
The report estimates Oceana's contribution to New Zealand's GDP is 0.17%, which equates to about $363 million in 2009, two-thirds of which is attributable to Otago - about $242 million.
Mr Cadzow said about 85% to 90% of Oceana's total revenue went into the local and national economy.
"The Macraes current life-of-mine is at least six years.
I'd see our level of [GDP] contribution to the Otago economy being maintained for at least that period," he said.
However, with successful exploration, that could be increased as Oceana looked at other opportunities to expand the business.
This would lead to additional capital being invested in the operation, he said.
Oceana had spent "and will continue to spend significant dollars" on brownfields exploration, at the Macraes and Reefton gold fields during the next two years.
"The company's ability to continue to add [estimated] reserve life is an important factor to sustaining the operations for years to come," Mr Cadzow said.
He highlighted that in Deloitte's Top 200 companies in the country, Oceana last year had the most improved percentage revenue change in the survey, being ranked at 101 by revenue and its total assets ranked 72nd.
Oceana had a workforce of 780.
When applied to an economic multiplier, it was estimated that each Oceana job underpinned a further three jobs in the community in the service and contract sectors, he said.
Oceana's staff and contractors were paid $63 million during 2009.
"It's a highly paid profession, about twice the national average [wage]," Mr Cadzow said.
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