OceanaGold returns to Didipio (October 11, 2010)

VANCOUVER — Two years after escalating costs forced OceanaGold (OGC-T) to halt development work at its Didipio gold-copper project in the Philippines, the Australianbased gold producer is taking another look at the site, with a new feasibility study that sets the stage for the resumption of construction.

The new study alters the mining method and process plant layout in an effort to de-risk the underground portion of the operation. Now, instead of using sublevel caving, Didipio’s underground mine will rely on sublevel stoping. The advantages are less risk of water ingress during periods of high rainfall and greater consistency of reliable ore production.

The tradeoff is mining rate. Stoping cannot produce the same ore output as caving, so in the new mine plan the mining rate is cut in half when Didipio switches from open-pit to underground mining in its eighth year. Specifically, in its first six years Didipio would run as an open-pit operation, churning through 2.5 million tonnes of ore annually. In year seven, mining begins to transition underground and by year eight the underground operation would be the sole source of ore. At that point, throughput would drop to 1.2 million tonnes per year.

Lower throughput means longer mine life, so the Didipio mine is now expected to run for 20 years instead of 15 based on the same reserves. Reserves at Didipio total 29.7 million tonnes grading 1.48 grams gold per tonne and 0.57% copper, for 1.4 million oz. gold and 374 million lbs. copper. The tonnage is divided fairly evenly between the open-pit and underground zones, though the open-pit deposit averages 0.82 gram gold and 0.63% copper while the underground reserve carries 2.06 grams gold and 0.52% copper.

During its first six years the mine would produce 71,000 oz. gold and 32 million lbs. copper annually. After the switch to underground operations annual production would decline to 67,000 oz. gold and 12 million lbs. copper.

OceanaGold should be able to produce an ounce of Didipio gold for just US$331, net of copper credits (using a copper price of US$3 per lb.).

The company has already spent US$80 million on development at Didipio. The main access road is in place, bulk earthworks are 60% complete, and more long lead time components for the processing plant such as the jaw crusher, mills, and flotation circuits have been bought and are in storage.

To complete development of Didipio should cost another US$140 million and take 15 to 20 months. OceanaGold is now examining its financing options, noting the project is unencumbered by hedging, project debt, or offtake agreements.

While searching for financing, the company will also be searching for a new CEO, as previous CEO Paul Bibby recently stepped down for personal reasons.

OceanaGold already operates three gold mines, all of which are in New Zealand. Macraes is the largest, followed by Reefton and Frasers Underground. By mid-year the three mines had produced 132,832 oz. gold, leaving the company on target to hit its 2010 production guidance of 270,000 to 290,000 oz.

And the company’s share price has climbed handsomely over the last 12 months. In September 2009, OceanaGold shares were trading for roughly $1. On news of the Didipio study, its share price added 5¢ to reach $3.92. It has 228 million shares outstanding.