OXR oxiana limited

oxiana set for gold expansion

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    Article from Mineweb:


    Oxiana set for gold expansion

    By: Peter Gonnella

    Posted: 2003/07/22 Tue 17:22 ZE8 | © Mineweb 1997-2003

    PERTH – Hot Aussie gold stock Oxiana [ASX:OXR] continues to put the runs on the board, following up its maiden full quarter of production at its 80 percent-owned Sepon gold mine in Laos with another robust operational performance in the June quarter.
    The company, the third largest listed Aussie-based gold producer (behind Newcrest Mining [ASX:NCM] and Lihir Gold [ASX:LHG]), achieved gold output of 42,601 ounces for the June period with cash costs and total production costs averaging US$128 per ounce and US$214/oz respectively. Debt free and free of gold and currency hedging, Oxiana received an average gold price on sales of US$345/oz.

    A significant factor in the June quarter was that, like the preceding quarter, the milled head grade (of 5.15g/t) realised at the new US$43.5 million Sepon operation again comfortably exceeded the bankable feasible study reserve estimate (of 3.2g/t). Very encouraging mine environs exploration results reported during the June quarter suggest that not only are reserve upgrades on the cards but also the above-budget grade reconciliation may be sustained for longer than originally thought. “Successful resource infill and extension drilling programs” point to “a continuing trend towards higher gold grades in all deposits”, according to its managing director, Owen Hegarty.

    The miner plans to release a revised gold resource/reserve inventory statement for Sepon in August, which could pave the way for a substantial expansion. Paterson Ord Minnett (POM) analyst Andrew Driscoll, who has just returned from a Sepon field visit, is anticipating an incremental resource increase in the order of about 19 percent or 400,000oz (to 2.5 million ounces). “A considerable proportion should be reserve status,” he said, adding that next month's reserve update would probably have a big bearing on the proposed gold plant expansion. Notwithstanding the Sepon area’s perceived excellent prospectivity and future prospects of further resource/reserve additions, Driscoll believes an initial reserve upgrade of about 32 percent or 300,000oz, which would lift reserves to over 1.2Moz, would justify the estimated US$15-$20 million investment. A decision to proceed or not is expected later this calendar year (CY).

    Despite Oxiana having expanded its issued capital to almost 1 billion shares after a recent A$75 million capital raising (see related article in side bar), investors haven’t been deterred. Its shares have remained buoyant, trading at a 13 percent premium to a couple of analysts’ DCF valuations (of A$0.54/share) based on their closing price today (Tuesday) of A$0.61, which equates to a market cap of more than A$565 million. Driscoll’s valuation incorporates a doubling of the Sepon gold plant throughput capacity to 2.5 million tonnes per annum (currently 1.25Mtpa) and exploration value of A$80 million.

    The market’s infatuation with Oxiana might to some small extent be the product of fewer major Aussie-domiciled gold groups floating around these days. But Oxiana has so far delivered on its promises and – with the upside potential attached to the Sepon copper project (see article in side bar) as well as the upbeat Sepon gold exploration outlook – is expected to maintain strong institutional and retail support going forward. “The stock is likely to continue to trade at a premium in recognition of the growth prospects,” noted POM’s Driscoll, who is forecasting CY 2003 and 2004 net profits for Oxiana of about A$24 million for each year ahead of commercial copper cathode production start-up at the proposed US$190 million Sepon copper project and commissioning of the possible US$20 million oxide gold expansion, both pencilled in for CY 2005.

    At the end of June, Oxiana had a consolidated US and Aussie dollar cash position equivalent to A$72 million

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