Geordie Mark Focuses On Miners Making Money At $1,200/oz Gold

TGR: Moving on to OceanaGold, how is this company evolving?

GM: It has three producing mines, one of which, Reefton in New Zealand, will close this year. Oceana has shifted its focus to the Philippines with the commissioning of Didipio, which will produce 100 Koz gold and 14,000 tons copper annually at significant margins.

New Zealand remains important to Oceana, however. In June, the company announced that it had entered into a definitive agreement to acquire the Waihi gold mine and surrounding exploration ground from Newmont Mining Corp. (NEM:NYSE) for $101M plus other considerations. We consider this as a positive step, as it adds critical mass to its New Zealand operations. Waihi has potentially three or more years of production and that could expand even further depending on its success in exploration at Correnso and elsewhere. This is a prudent, small-scale acquisition that adds to Oceana's existing operational base. One of the worries that people had about Oceana was that it would acquire an asset that was inconsistent with the current market environment and the team's current production philosophy. Instead, Oceana made a synergistic acquisition that was aligned with the team's focus of delivering margin, and which has demonstrable exploration upside that could be integrated into future production.

TGR: Oceana now owns 14.9% of Gold Standard Ventures Corp. (GSV:TSX.V; GSV:NYSE). What is the reason for this investment?

GM: Oceana wanted to consolidate its presence in the Americas, and in particular within one of North America's primary gold-producing states, Nevada. To that end, Gold Standard Ventures has a significant footprint in that state, and defined some very intriguing systems at the Railroad-Pinion gold project in the Carlin Trend. Oceana's technical team likes the potential of the holdings that Gold Standard has put together in that state over the last several years.

TGR: Newmont and Barrick Gold Corp. (ABX:TSX; ABX:NYSE) have been ridding themselves of a fair number of properties recently. Will this trend continue?

GM: Yes. Across the mining space, the larger companies have been divesting smaller-scale assets and assets with lower-defined mine lives in order to deleverage, and harmonize operational management. The smaller companies that buy these assets have the potential to improve the operating cost structure at these assets, refocus the local workforce and test for future reserve potential.

TGR: How big do Tahoe, OceanaGold and B2Gold want to become?

GM: That's a good question for their respective management teams. These companies have been buying assets that marry well with the practical capacity of their operating teams. I believe that the reasonable plan for these companies is to grow at a modest pace that is commensurate with their capacity. There is a dearth of mid-tier gold producing companies, and so that's probably a reasonable space to grow into whether by organic growth, acquisition or a combination of both.

TGR: Has your rating of any of these companies changed recently?

GM: After Tahoe's purchase of Rio Alto and its Q1/15 performance was announced, our rating changed from Hold to Buy. We like the team and its near-term focus to support production growth and bolster operating margin. Tahoe has a world-class asset in Escobal that provides a cornerstone free cash flow generator that will enable management to consider pragmatic and timely future acquisitions.

TGR: What are your two favorite African gold development projects?

GM: One that is at the front of the list is Asanko Gold Inc.'s (AKG:NYSE.MKT; AKG:TSX) Asanko gold mine in Ghana. We visited it last month. It's likely more than 50% complete now and on schedule for its first pour in February 2016. Phase 1 is on track to meet its capex of $295M. That said, we expect that Asanko is supported by a $40M liquidity buffer (cash and debt) beyond the project contingency within the $295M capex figure. We like the jurisdiction, and the onsite development team has considerable experience in building mines across Africa.

With phase 2, Asanko has the capacity go from about 200 Koz annually to 400 Koz starting in 2018–2019. Altogether, Asanko has more than 4 million ounces (4 Moz) in reserves and more than 10 Moz in resources across its Asanko gold mine asset portfolio. We believe that the company trades relatively cheaply compared to its underlying net asset value, and our target price projects the company's market price to move toward the net asset value per share as the mine moves closer to production.

View single page >> |


1) Kevin Michael Grace conducted this interview for Streetwise Reports LLC, publisher of more

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.


Leave a comment to automatically be entered into our contest to win a free Echo Show.