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.

Why Should Investors book profit?

• Depressed margins: In Q4FY21, the company reported a negative operating margin and negative pretax margin of 64.6% and 66.3%, respectively, as compared to the industry median of 8.4% and 8.3%, respectively. This is an indication of poor cost management, which remains a major concern. Moreover, the company posted a negative net margin of 46% in Q4FY21, as compared to the industry median of 6.5%.

• Decline in cash balance: In FY21, the company reported a lower cash and cash equivalents of USD 133 million, which is significantly lower than USD 179 million in FY20. A lower cash balance might lead to liquidity crisis.
  

• Surge in input costs: In Q4FY21, site *AISC stood at USD 1,326/ ounce in Q4FY21, which is significantly higher than both USD 1,200/ounce in Q3FY21, and USD 1,080/ounce in Q4FY20, respectively. Continuation of the above trend is likely to dampen the company’s margins in the comping periods.

*AISC= All-In Sustaining Costs

Valuation Methodolgy(Illustrative) : Price to Cash flow based

Analysis by Kalkine Group 

Stock Recommendation:

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. We have valued the stock using the Price to CF-based relative valuation approach and arrived at a target price offering double-digit downside potential (in % terms). We have considered peers like IAMGOLD Corp, New Gold Inc for the purpose. Considering the aforesaid facts, we recommend a ‘Sell’ rating on the stock of OGC at the closing price of CAD 2.85 on March 17, 2022.

One-Year Technical Price Chart (as on March 17, 2022) Source: REFINITIV, Analysis by Kalkine Group

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

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