OceanaGold says Didipio costs blow out US$35m to US$220m

Monday 16th July 2012

Macraes goldfield operator OceanaGold said its Didipio gold and copper project in the Philippines is now estimated to cost US$220 million, US$35 million more than the company announced in June last year.

OceanaGold also said it has credit approvals from a group of large multi-national banks for a three-year US$220 credit facility, subject to final documentation.

The main reasons for the Didipio cost blow-out are "associated with increases in engineering design and procurement services, TSF (the tailings storage facility) and infrastructure construction and site support costs," OceanaGold said "Working capital requirements on start-up are expected to be an additional US$27 million."

At June 30, the company had spent US$161 million on the project with a further US$24 million committed in contracts. Cash on hand was US$73 million.

"The Didipio project is going extremely well. We remain on track to achieve our goal set out in June last year to commence commissioning" in the December quarter this year, said managing director Mick Wilkes.

"The increased capital cost for the project is consistent with industry cost pressures today, particularly for engineering design services," Wilkes said. "We also made the very deliberate decision to engage with high-quality contractors in the Philippines which cost more money to ensure the project was built to a high standard and on time."

In June last year, Wilkes said Didipio had a "very robust" capital payback of one to two years, based on the then estimated capital costs of US$185 million

Now Wilkes said construction at the Didipio project is more than 70 percent complete and is fully financed.

"Recruitment for Didipio permanent operations team and operations readiness plans are well advanced" with about 60 percent of the required positions already filled, it said.

Key outstanding items are the delivery of seven power generators and electrical switch rooms but all power equipment should be at the site over the next four to six weeks.

"Mining of the Didipio ore body has commenced on schedule this month in readiness for commissioning in the fourth quarter and to build ore stockpiles for production in 2013."

The credit facility will provide additional liquidity if necessary to repay the A$57.8 million of OceanaGold's convertible bonds maturing December 2012, repay the A$110 million of convertible bonds maturing December 2013 and provide US$50 million in working capital, Wilkes said.

Securing the facility is "a vote of confidence in OceanaGold and allows us to focus on successfully commissioning Didipio and generating strong cash flows from our operations in 2013," he said.

In June last year, Wilkes said the December 2012 bonds would be repaid from cash flow.

OceanaGold shares, which are dual-listed on both the ASX and NZX, are up 3 cents at $2.40. While that's up from the year-low at $2.18 in May, the shares have been trending down from $5.20 in December 2010.

BusinessDesk.co.nz

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