OceanaGold Corporation (TSX: OGC) is engaged in the exploration, development of gold and other minerals and has a presence across Philippines, New Zealand, and, to a lesser extent, the United States.

Key Highlights:

• Impressive FY21 production: The company reported its FY21 gold production of 362,807 oz, grew 20% on y-o-y basis. The company registered 189,975 oz of gold production from the Haile mine, while its Didipio registered production of 14,863 ounces of gold and 2,323 tonnes of copper, respectively.

• Strong Margin profile: In Q3FY21, the company posted its EBITDA and operating margins of 42.7% and 18.3%, respectively, compared to the industry median of 7.9% and 7.8%, respectively. Moreover, the company’s net margin for the quarter stood higher at 21.9%, versus the industry median of 6.4%. This indicates higher operational efficiencies and improved cost management as compared to the industry.
  

• Prudent working capital management: The company has prudent working capital management and reported its quick ratio and current ratio of 0.88x and 1.51x, respectively, in Q3FY21, as compared to the industry median of 0.60x and 0.96x, respectively. This indicates better utilization of resources as compared to the industry median.
  

• Management Update: On February 10, 2022, the company announced the appointment of Mr. Gerard Bond for the position of new President and Chief Executive Officer with effect from April 4, 2022.

Risks associated with investment 

The company’s operations might be hindered by events like delay in execution of its upcoming projects, volatility in commodity prices etc. Moreover, being unable to report the expected result from the new drilling area would likely impact the company’s upcoming performance and its mineral reserves. 

Q3FY21 Financial Highlights:

Q3FY21 Income Statement Highlights (Source: Company Report)

• OGC announced its third quarter result, wherein the company reported revenue of USD 204.6 million, jumped from USD 97.9 million in pcp. The surge was driven by higher gold sales (97.4 koz v/s 60.8 koz in pcp) coupled with a higher average gold price (USD 1,797/oz vs USD 1,601/ oz in pcp) received.

• Operating profit stood higher at USD 37.5 million in Q3FY21, as compared to an operating loss of USD 22.2 million in pcp. The quarter was marked by increase in cost of sales and a surge in the general & administration costs.

• The group turned profitable and reported a net profit of USD 44.9 million, as compared to a net loss of USD 96.8 million in pcp. This was due to the above-mentioned facts coupled with exclusion of impairment charge in Q3FY21.
  

Valuation Methodolgy(Illustrative) : Price to Cash flow based 

Analysis by Kalkine Group 

Stock Recommendation:

For FY22, the company expects its gold production in between 445,000 to 495,000 ounces while its copper production is expected in between 11,000 to 13,000 tonnes. For FY22, the company’s AISC costs is expected in between USD 1,275 to 1,375/ounce. The company’s Didipio mine is expected produce 100,000 to 110,000 ounces of gold along with 11,000 to 13,000 tonnes of copper in FY22. We have valued the stock using the price to cash flow-based valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Eldorado Gold Corp, New Gold Inc and IAMGOLD Corp. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of OGC at the closing price of CAD 2.10 on February 14, 2022.

One-Year Technical Price Chart (as on February 14, 2022) Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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