FYI | May 17 2006
By Greg Peel
FN Arena noted two weeks ago (OceanaGold Hedge Restructure Eagerly Awaited, May 3) that New Zealand miner OceanaGold (OGD) had announced its intentions to restructure is gold hedge book. While brokers withheld any rating changes until the restructure would be confirmed, the market got in early and boosted the share price some 10%.
Oceana was previously struggling under the weight of a hedge book which saw some 80% of sales out to 2008 set at pre-boom prices.
An ASX announcement notes the restructure sees 423,000oz of 2007 sales originally set at a price of NZ$710/oz now freed up such that 55% of Oceana’s production can be sold at spot from now until 2010, with the remaining 45% delivered into hedge contracts with a higher average delivery price than the current book. Working off a current spot price of NZ$1,135/oz, Oceana estimates that NZ$45m of additional cash will be generated over 2006-07.
Macquarie was the first of the five brokers in the FN Arena database who cover Oceana to respond to the hedge book changes. However, as Macquarie made material (36%) increases to its gold price forecasts, taking its 2007 forecast to US$833, resultant earnings adjustments take both the restructure and the new price into account.
Macquarie has lifted 2006 earnings by 29% in 2006 and 39% in 2008, but 2007 enjoys no change as gains in that year will be offset by Macquarie’s reduced production forecast.
Oceana provides good leverage in a rising gold price environment, the analysts suggest. They rate the stock Outperform, and have set a target of $1.35 (last trade $0.88). Of the 5 brokers covering Oceana, 3 rate it a Buy and 2 a Hold.