OceanaGold Hedge Restructure Eagerly Awaited

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By Greg Peel

ASX-listed OceanaGold (OGD) isn’t saying much at this point, but it will say that details of its hedge book restructure could be announced as early as next week. Resource analysts have sat up and taken notice.

The company issued an impressive quarterly production report last week. March production was 10% up on December at 53.2koz, and a shift to a higher grade pit increased grade by 16%. Deutsch Bank described the result as "excellent". Costs were also reduced, production being costed at A$292/oz and a total cost of A$493/oz. Receipts averaged A$608/oz.

Despite the cost reductions, Oceana has been running an 80% hedge book with sales out to 2008. This means that 3 out of 4 brokers in the FN Arena universe covering the stock have called it a Hold irrespective of the bull run (Deutsche is a Buy). But this is changing as we speak.

Taking advantage of a weaker New Zealand dollar, the company is rolling out its hedges to 2010 to create a flat forward structure (on an NPV basis). At the same time it is reducing the amount of forward sold gold to 20% from a current 55%.

This is what has brokers excited, as it means Oceana will be able to take a much greater advantage of the current spot gold price environment. There will be offsets from the rollover, but the situation should become much improved.

ABN Amro expects earnings and cash flow estimates to change "substantially". Will we see a consensus re-rating of the company by next week?

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