All that glitters

The global recession hasn’t sent gold prices into quite the stratosphere some pundits predicted, but the soft Kiwi dollar and mines operating to capacity ensure glowing short-to-medium term futures for New Zealand’s two biggest producers, OceanaGold Corporation and Newmont Waihi. And in the background smaller exploration companies are also getting closer to production.   By HUGH DE LACY.

Years of development at Oceana’s Otago and Westland mines, and at Newmont’s Favona near Waihi, have ensured both are nicely placed to take advantage of prices bouncing around US$900 an ounce on the New York and London bullion markets.

Though the Kiwi has trended broadly upwards since slipping briefly under US50 cents late last year, and by late April was hovering around the US57 cent mark, that still translates to a healthy $1580 and ounce, albeit slightly back from the record $1787/oz it hit late in January.

The outlook for both Oceana and Newmont Waihi has been further buoyed by on-going exploration programmes identifying promising areas extending from current operations.

Oceana, listed on the Toronto Stock Exchange as well as Australia and New Zealand, has forecast output of up to 300,000 ounces this year from its two Macraes mines in east Otago, and its Globe-Progress mine at Reefton.

But to judge from its results for the first quarter of the year, that prediction looks pessimistic: the company produced 84,037 ounces, its highest quarterly output yet, beating the last quarter of 2008 by 11 percent.

Oceana’s actual sales for the three months to March 31 were 81,093 ounces at a cash cost of $279/oz.

“This result exceeded company expectations and reflects the fourth consecutive quarter of increased gold sales and declining cash costs,” the company says.

The cash operating margin improved to $403 an ounce (up 21 percent), and the cash flow from operations to $23 million (up 15 percent), compared to the December quarter.

Earnings before interest, taxes, depreciation and amortisation, and excluding unrealised gains or losses on undesignated hedges, was $31 million.

The postponement of development at its Didipio tenement in the Phillipines, brought on by cash-flow problems in the middle of last year, also means there will be little external drain on the company’s cash-flow in calendar 2009.

Further brightening the Oceana outlook was the recent the discovery of a new mineralised zone called Panel 2 Deeps, first encountered during the driving of the decline for the Frasers underground mine at Macraes.

A 39-hole drilling programme has revealed intercepts ranging from two to 27 metres thick with average grades of up to 7.2 grammes per tonne.

The zone is open to the south and east, and chief executive Steve Orr expects that following further drilling it can be added to the mine’s underground reserves.

American-owned Newmont reported having an excellent production year in calendar 2008, with the new Favona underground mine and the winding back operations at the Martha Pit yielding 144,000 ounces, compared to 85,000 ounces in 2007.

A total of just over a million dry short tonnes was milled, 600,000 tonne of it from the Martha pit, almost doubling the 550,000 tonne of the previous year before Favona came fully on-stream.

Newmont is forecasting production of around 130,000 ounces this calendar year, and it too is buoyed by the results of a $7 million exploration programme last year.

It has identified a number of promising prospects, including an extension to Favona’s gold and silver ore body, while unconfirmed reports said the company had delineated a medium-sized high-grade ore body called Trio about a kilometre from Favona.

After sliding somewhat in price when the global credit crisis first hit about September last year, gold has since firmed as panicked investors switch to this traditional safe haven.

By mid-February gold in New York was fetching about US$910 and ounce, and in New Zealand dollars it hit a record price of $1787/oz in late January as the Kiwi continued to plunge against the greenback.

A year ago gold hit a record price in American dollars of $975.90, but the strength of the Kiwi dollar at the time meant this translated into just $1240.

With indications that the global recession may now have bottomed out, the wilder predictions of gold hitting US$2000 an ounce look increasingly unrealistic, but New Zealand producers should be happy if it sustains its present price and the dollar stays within its current range.

Smaller listed exploration companies Glass Earth and Heritage Gold are edging towards production.

Wellington-based but Toronto-registered Glass Earth ran at a full-year loss of $1.9 million last year, down from the previous year’s $3.9 million after spending $7.9 million on exploration.

In November it adjusted its exploration programme to conserve funds in the face of the recession, and in February it hinted it was looking to boost cash-flow by taking on more joint venture projects like the airborne geophysical survey it did in 2007 for the Otago Regional Council.

It continues to explore the Hauraki region in a joint venture with Newmont while pursuing the prospecting of it Mamaku and Otago tenements.

Australian and New Zealand listed Heritage, keen to move from an exploration to a production company, has applied for mining permits at its Talisman and Dominion Knoll prospects near Waihi and is sounding out partners to begin mining.

There have been no developments worth talking about at Ophir Gold, the explorer with promising tenements adjacent to the village of Ophir in Central Otago, according to chairman Ray Polson.

He told Q&M the Otago-owned company is working with Crown minerals on a renewal of its licences to the quartz deposits that seem to be a distant extension of Oceana’s Macraes field.

Over on the Grey River, Birchfield Minerals is close to getting its gold dredge back into operation, according to principal Alan Birchfield, with an announcement possible this month.

Pan handling

Perhaps surprisingly given the impact of the global recession, there’s been no discernible increase in activity at the bottom end of the gold-hunting pecking order, among the fossickers and panners.

Past recessions, and particularly the Great Depression of the 1930s, prompted hundreds of people to try their hand at small-scale gold-mining using pans and sluice-boxes, but that appears not to be happening this time around despite the strength of the gold price.

Auckland-based bullion buyer Morris and Watson has a permanent office on the West Coast run by Jenny and Brian Forrest, with another agent, Michael Garland, covering the rest of the South Island.

“Because the prices here have moved up a huge amount I thought we would have seen a lot more people getting out and having a go, but that doesn’t seem to be happening,” Garland says.

Jenny Forrest says she hadn’t seen any increase in production by fossickers despite Crown Minerals having set aside a number of sites in the South Island where private individuals can pan or sluice for gold without a mining permit or resource consent.

Under the 1991 Crown Minerals Act the Government designated 16 gold-fossicking areas scattered through Nelson-Marlborough, the West Coast and Central Otago, mostly on old alluvial mining sites where the easily-won gold has long since been worked out.

They range in size from 2.2 to 17.5 hectares, and the latest to be added to the list is in the fabled Gabriels Gully near Lawrence in Otago.

However, unlike Gabriel Read, who sparked the great gold rush of 1861, modern-day fossickers are unlikely still to find gold “sparkling like the stars in the Orion” in the bed of the Tuapeka River.