OceanaGold’s New Zealand Reefton operations are not viable at a gold price under $NZ2000 an ounce, the company has revealed.
Speaking to the Diggers and Dealers delegation in Kalgoorlie this week OceanaGold’s managing director Michael Wilkes said for its Reefton operations to not be put into care and maintenance a gold price of $NZ2000 ($AU1755) would give the company enough cash flow to justify further investment.
In June Australian Mining reported the struggling gold price forced OceanaGold’s Reefton operations to be suspended two years early, with its Globe Progress pit to be moved into care and maintenance half way through 2015.
Wilkes said the gold price was sitting comfortably above $NZ2000 for the majority of last year before dropping about 20 per cent or about $400 an ounce earlier this year.
“It was a very big correction to the business plan,” he said.
“For us [a drop of] 400 an ounce by 250,000 ounces that’s $100 million dollars which comes straight off the revenue line so you have to change pretty quickly.”
Wilkes said if the bullion market is to recover to above $NZ2000 it will see the Reefton mine life extended by a minimum two years.
The company has managed to cut $US100 million in costs out of its operations, including freezing wages, scaling back exploration activities and renegotiating contractor and supply agreements.
Wilkes said the current gold price is however sustainable for its Macraes operation located on New Zealand’s south island, but changes have been made at it’s open pit and underground mines which has “chopped a couple of years off the mine life,” he said.
“We haven’t put any hedges in place at Macraes because it is fine at the current gold price,” Wilkes said.
“We’re also working in the background on how we can reinvent Macraes post 2017.”
He said there are some engineering options available at Macraes, but the cost to make changes to the operation is yet to be finalised.
“It looks like it [Macraes] will keep on going,” he said.
Discussing the future of the bullion market Wilkes predicts the gold price “will trade side ways at around $US1300 for a couple of years”.
But he explained a stronger US dollar could provide some relief, with weaker Australian and New Zealand currencies.
Wilkes said the company is looking at further cost cutting in its corporate operations this year, which will include organisation and staff reviews, contracts, and mine plans.
He said the company hasn’t set a cost cutting target but will do what is “sensible”.