UBS Global Research 20 June 2018 OceanaGold Corporation Raising...

UBS Global Research
20 June 2018
OceanaGold Corporation
Raising Guidance

12-month rating: Buy
12m price target: A$4.20
Prior: A$4.10
Price: A$3.55

At ~1.0x P/NPV, OGC is offering good value; Retain Buy Rating.
We upgraded OceanaGold to a Buy in February on the view that the worst was behind
the company and that a re-rating was possible (see note). They then reported a solid
Q1 result which added to our confidence in their original guidance of 480-530koz
being achieved. Today OGC have lifted this guidance range to 500-540koz (+3%)
another incremental positive step. A continuation of positive news over time may see
OGC steadily rerate closer to peers. At ~1.0x P/NPV, we believe OGC is offering good
value compared to peers and the sector, which is on 1.4x, see page 2. Permitting for
Haile to access the high grade underground is a key catalyst which should commence
mid-year. We continue to watch this process closely as we believe a delay could risk
long term upside expectations. We think OGC's asset diversification, mine life, low
costs, improving balance sheet & potential rerating closer to peers demands attention.

Digging into the production guidance
The production guidance didn’t update any of the individual asset or cost guidance,
instead opting for qualitative feedback on each. We think that Didipio may have driven
the bulk of the positive update, OGC highlighted in their updated that ramp up of the
underground is progressing well. Weather issues from Q1 are now behind Waihi.

Updates to our earnings and valuation
We have lifted our production estimates for FY18 by 7% at the group level to 522kt,
just a tad above the mid point of OGC’s guidance. We have lifted our production
estimate by more than OGC’s guidance lift of +3%. This lifts our EBITDA by 16% to
US$383m and NPAT by 60% to US$111m. We are changing our discount rate for our
base case valuation to 10%, from 8% for NZ/US assets and 10% for Didipio to
standardise our gold coverage. This cuts our base case NPV 3% to A$3.35ps. We are
well aware that gold investors trade stocks with a premium approach to our thinking.
We are not trying to debate discount rates, just standardise our coverage. For those
that think a 5% discount rate is appropriate, our valuation would lift to A$4.27ps.

Valuation: A$3.35ps (10% d.r.; a 5% discount rate would lift this to A$4.27ps)
Our price target of A$4.20ps is set at 1.25x P/NPV to reflect the potential for a rerating
closer to ASX listed peers on 1.4x.