Market Update & Important Indicators:
U.S. stocks rose Tuesday, boosted by gains in technology and consumer shares. Tech shares rose 1.1% in the S&P 500. Shares of oil and gas companies fell as U.S. crude dropped, giving back some of Monday's gains. U.S. equities were higher Tuesday as investors welcomed an apparent win for Democratic nominee Clinton over her Republican rival Donald Trump in their first presidential debate Monday night. Oil prices have been choppy in recent sessions as major producers attend a conference in Algiers, where investors are hoping for progress on an agreement to cap output. On Tuesday, The Wall Street Journal reported that the Organization of the Petroleum Exporting Countries planned to discuss a proposal that would cut almost 1 million barrels a day of the cartel's production over one year.
European stocks closed fractionally higher Tuesday, rebounding at the last minute after being pressured most of the session by the energy sector after Iran poured cold water on hopes for an output cap at a meeting of major oil producers this week. The Stoxx Europe 600 edged up less than a point to end at 340.19. The index had risen by as much as 0.7% early in the session as investors took heart from Hillary Clinton's performance in the U.S. presidential debate Monday night but then had slid into negative territory before creeping back up. The benchmark on Monday fell 1.6%, losing the most since early July, weighed on by a drop in oil shares and stock in Deutsche Bank.
Stock markets rose broadly across Asia on Tuesday, reversing early declines as investors conclude that U.S. Democratic candidate Hillary Clinton won the first presidential debate. The Nikkei Stock Average closed up 0.8%, having traded 1.6% lower before the head-to-head with Republican nominee Donald Trump. Hong Kong's Hang Seng Index gained 1.2% after opening flat, the Shanghai Composite Index and Korea's Kospi both reversed losses to end up 0.6% and 0.8%, respectively. Driven by a rise in U.S. S&P 500 futures, Asian stocks caught an updraft as the market shrugged off some of the uncertainty posed by Mr. Trump. After the debate, the Japanese yen fell 0.5% against the U.S. dollar, helping exporters' shares turn positive. Blue-chip companies with heavy U.S. market exposure were among the biggest gainers in Hong Kong.
Broad selling pulled Australian shares lower Tuesday for the first time in the past six sessions, tracking falls in U.S. and European markets on renewed concerns about global banks. Australia's biggest banks accounted for a large chunk of the day's decline, as did energy stocks as crude-oil prices lost ground after Iran played down expectations major producers might be able to agree to a deal curbing the global supply glut. Still, the market finished off its lows, recovering alongside most markets in the region as the U.S. dollar faltered after the first presidential debate highlighted the stark choice facing American voters in the November election. The S&P/ASX 200 fell 25.5 points, or 0.5%, to 5405.90–the sharpest fall in two weeks. The index fell much as 1.1% early in the session. The "Big Four" banks collectively knocked about 10 points off the ASX 200, taking back some of the financial sector's gains last week.
The London Metal Exchange's three-month copper contract closed down 1.12% at $4,787/t. Other base metals were mainly up Tuesday. Tin rose 0.1% to $19,828/t, nickel rose 1.0% at $10,585/t, zinc rose 1.5%% to $2,314/t and lead rose 1.4% to $1,965/t. Aluminium prices fell 0.6% to $1,638/t.
In this Issue:
OceanaGold Corporation (OGC) | At a Glance | Current Price $4.35
Conference call with management post-Philippine’s government mine audit shows issues with Dipidio mine
Quick Read:
OGC shares fell today after news that the Environment Secretary of the Philippine’s announced a raft of potential suspensions for 21 out of the 40 miners in the country for companies breaching environmental and social issues. OGC was included in the list for breaching a number of conditions which we will explain below.
OGC held a press conference on Tuesday evening and clarified their position on a number of those claims. The company has yet to speak to the government or receive any notice of a potential suspension and operations are continuing normally on site. OGC has been unable to have dialog with the Environment Secretary Regina Lopez for several weeks. At this stage the outlook is opaque and will require further clarification from the government and the company.
Whilst the issues outlined by the government for the suspension are in our view easily mitigated, the short term outlook remains high risk.
Dipidio will contribute 32% of total CY16 gold production with cash costs of just $8/oz in the June quarter (thanks to a copper credit) and the company is mid-way through investing US$116m pre-production capital to bring the underground on-line.
Event & Impact: NEGATIVE
The government outlined 4 key points for their inclusion of OGC on the list of proposed suspensions (responses by OGC in bold)
1) A petition from local government parties in the region of the mine to cancel exploration tenements – OGC’s response to this was that social media sites suggested the local governor visited the Dept of Natural Resources with landowners including small scale illegal (non-permitted) miners, their aim was to garner leverage by their relationship with the local governor.
2) Damage to houses due to blasting – A concern raised by one resident in the village at Dipidio. It was checked out and turned out to be bad construction methods which led to the damage, not from blasting debris.
3) Perceived danger of underground mining – This occurred earlier this year and was resolved by consultation with the community and education programs.
4) A preference for Agriculture in the region – Issues have arisen because of citrus farms in the region which have nationally been experiencing decline (not due to the mining). OGC believes there can be a collaboration by both parties. NGO’s have raised concerns that the impact of mining will have on the citrus industry.
OGC has yet to receive any formal notification of the audit. Management had contacted Secretary Lopez 6 weeks ago and again 1 week ago and both times their calls for dialogue have gone un-answered.
At this stage the only notion that OGC has, is via social media and even then they aren’t aware if it’s from a reputable source. The company believes a few thousand people from the Dipidio community are preparing a march on the president’s office to show support for the company.
What to do?
• It’s a difficult situation for OGC, but were sure that these issues will be overcome. In the short term we expect sovereign risk issues will continue to over-shadow the stock.
• The irony here is that OGC received the “Most environmentally responsible mine” award from former president Aquino in early 2016.
• Most of the mine level issues raised had been previously resolved so the reality is that they don’t pose a direct threat.
• The issue at hand is what the Philippine’s government will do now and that remains the biggest risk to the downside – the government holds all the cards at this point.
• The press conference suggested miners will be given 7 days to respond to these points – as yet OGC has had no notification formally so more information is expected in coming days.
• There’s a strong chance OGC could bounce if these issues are resolved, but the reputational damage inflicted as a result of these broad sweeping suspension proposals, and the way it has been communicated may take longer to repair for investors.
Key points on OGC’s Dipidio Asset:
2016 production guidance: 130-145koz Au, 19-21Kt Cu
AISC: $300-350/oz
Measured and Indicated resources: 2.1Moz Au 260kt Cu
Estimated mine life: 2030+
Recent Contacts & Presentations:
Dakota Minerals Ltd (DKO), Breaker Resources NL (BRB), Bard1 Life Sciences Ltd (BD1), Alto Metals Ltd (AME), Birimian Limited (BGS), Antipa Minerals Ltd (AZY), Vault Intelligence Ltd (VLT), Noxopharm Ltd (NOX), Gage Roads Brewing Co. (GRB), West African Resources (WAF), Cedar Woods Properties Ltd (CWP), Sino Gas & Energy Holdings Ltd (SEH), Salt Lake Potash Ltd (SO4), Kalina Power Ltd (KPO), Austal Limited (ASB), Agrimin Ltd (AMN), Stavely Minerals Ltd (SVY), MGC Pharmaceuticals Ltd (MXC), Vital Metals Ltd (VML), Tox Free Solutions Ltd (TOX), Swick Mining Services Ltd (SWK), Davenport Resources Ltd (DAV), Orthocell Ltd (OCC), BC Iron Limited (BCI)
Please read Argonaut's Important Disclaimers & disclosures
