OceanaGold (TSX: OGC; ASX: OGC) has suspended underground mining at its Didipio gold-copper mine on the island of Luzon in the Philippines due to restraints imposed by the provincial government of Nueva Vizcaya.
Local government units have impeded access to the mine since July 1, after the governor of the province issued a directive to "restrain any operations" of the company. The actions began that day, when a local government unit prevented a supply truck from accessing the mine site. As a result, the company decided to halt all truck movements in and out of the mine site to prevent any escalation.
OceanaGold's request for an injunction against the provincial ruling, filed on July 3, was denied by the Provincial Court of Nueva Vizcaya, the company reported on July 25. Management will challenge the decision in the Philippine Court of Appeals in Manila on the basis that regulatory authority over Didipio rests with the national government, not the local government units.
In the meantime, OceanaGold has ceased mining because it lacks sufficient supplies of consumables, although the mill continues to produce concentrate from stockpiled ore.
The company submitted its application to renew Didipio's Financial or Technical Assistance Agreement (FTAA) with the Philippine Government in March 2018, and in June 2019, the national government's regulatory authority, the Mines and Geosciences Bureau, confirmed that the mine is permitted to continue operations pending confirmation of the FTAA renewal. (Didipio's FTAA became renewable for another 25 years under the same terms and conditions in June 2019.)
Mick Wilkes, OceanaGold's president and CEO, says the company is working with the regulatory agencies and national government to finalize the renewal and doesn't yet have a timetable as to when the process will be concluded.
"While the renewal process continues, the national government, which has authority over mining in the country, has permitted continued operations at Didipio," Wilkes told analysts and investors on a July 25 conference call. "Unfortunately, some parties have seen this as an opportunity to challenge that directive by spreading misinformation and disrupting our operations at Didipio."
"The FTAA renewal will basically make any issues with the local government go away," Wilkes said during a question and answer session on the conference call.
"At this stage," he added, OceanaGold is confident that it can meet its guidance for the year.
"We will just have to wait and see how Didipio pans out," Wilkes said.
"We continue our discussions with the government, including the office of the presidents, who have the authority to sign the approval," he said. "So we're not going to discuss the details of that, other than to say it is a good working relationship, and we are moving it forward as quickly as we can and I'm confident of a positive outcome."
As for how long it would take Didipio to ramp back up after the FTAA is renewed, Wilkes estimated weeks not months. "I don't have any definitive timelines for the ramp back up," he noted, " but as you know, it will take a bit of time, but in the order of weeks."
Wilkes described Didipio as a "world-class operation that has strong social licence to operate," and said the company has had "the support of the community during this renewal period and uncertainty."
The mine directly employs over 1,500 workers - 97% of whom are Philippine nationals, and of those, 59% are from the local communities. Didipio started commercial production on April 1 2013, and provides indirect employment for nearly 4,000 Filipinos from the provinces of Nueva Vizcaya and Quirino, the company says.
"We have stimulated the local economy and have led to the establishment of new enterprises that are thriving," Wilkes said. "We have constructed hundreds of kilometres of access roads connecting Didipio to new markets. We have built hospitals and schools. We have focused on building capacity through training, education, and other forms of tuition assistance."
In addition, Wilkes noted, the company set up an underground simulator at the Clark Training Center, which has allowed Filipinos from communities in the area to get hands-on training and certification to work underground at the mine.
Underground mining commenced at Didipio in the first quarter of 2018.
During the second quarter, Didipio produced 33,100 oz. gold and 8.82 million lb. copper at a cash cost of US$552 per oz. and all-in sustaining costs of US$733 per ounce.
At press time, OceanaGold's shares are trading at $3.58 in a 52-week range of $3.27 to $5.01 per share.
In a research note to clients, Farooq Hamed of Raymond James, states the stock price "will remain suppressed until the blockade at Didipio is resolved or the FTAA renewal is officially granted."
"Given the FTAA renewal has received the support of the Mines and GeoSciences bureau (mining regulatory arm of the Department of Environment and Natural Resources), we remain optimistic regarding some form of resolution at Didipio," Farooq comments, "and as a result continue to model annual overall production in-line with guidance. (We are modelling production of 522,000 oz. gold at $917 per oz. all-in sustaining costs (AISCs) versus guidance of 500,000-550,000 oz. at AISCs of $850-$900 per ounce.)"
Consolidated production in the second quarter from all of its operations (Didipio, Waihi and Macraes in New Zealand, and Haile in the U.S.), reached 129,290 oz. gold and 3,961 tonnes copper at consolidated AISCs of US$1,118 per ounce.
At the end of June, OceanaGold had a cash balance of US$84.7 million and immediately available liquidity of US$134.7 million.