OceanaGold Philippines [OGP 15.82 ?2.8%; 93% avgVol] [link] declared a Q1 dividend of $0.0075/share (~?0.42/share), payable on June 18 to shareholders of record as of May 22. The dividend is 25% smaller than the $0.0100/share it declared out of its Q4/24 free cash flow, and represents an annualized yield of 10.3%, down from its previous annualized yield of 13.8%. In the associated press release, OGP said it produced 20.6 koz of gold in Q1 (-22% y/y, +5% q/q), and generated a net income of $7.4 million (-36% y/y). It added that it was “on track for full year production and cost guidance”, and that it “expects to increase [OGP’s] mining rates in the coming quarters…, capitalizing on record high metal prices and continuing to generate strong return for our shareholders.” Digging into the Quarterly Report, OGP said that it produced 5% more gold than Q4/24 because it milled 11% more ore, thanks to a lack of power outages, and it was able to extract more material from the lower reaches of the mine. OGP said that material pulled from the lower reaches is “expected to continue to increase throughout the year as part of the ongoing underground optimization work.” Relative to Q1/24, OGP said that it milled 24% less ore due to weather-related work stoppages, and that overall mill feed grade was lower due to the new “mine design sequence”. As for gold sales, OGP sold 17.8 koz in Q1/25 (-44% y/y), at an average gold price of $2,858/oz (+34% y/y).
MB BOTTOM-LINE: There’s a lot that goes into generating income for a gold mine, and for investors who have never owned a mining stock before, it’s important to mentally acknowledge that those steps exist and that each step has its own set of operational risks, and associated set of management decisions that can be made to adjust production at each step. For OGP, the basic sequence is this: pull ore out of the ground, “mill” the ore into sellable product, then sell the gold and copper for cash. There’s a lot more before, during, and after those stages, but that’s good enough for the purpose of my example. At the mining phase, that’s where the process is most vulnerable to weather and other “Acts of God” that interrupt the human ability to pilot machines to pull thousands of tons of rock out of the ground without dying. But this stage is also vulnerable to changes in ore quality (purity). In a world where a machine can only mine a set amount of ore per day, it will naturally make more money if it pulls out the full amount of high-grade ore that can produce more gold. But sometimes a vein of high-grade ore turns crappy, and the machines spend too much time mining low-grade ore and some time is wasted trying to adjust to re-find the rich ore vein. At the “milling” step, this is where OGP is most vulnerable to things like power outages. Milling is a power-intensive process. It’s also where OGP is exposed to maintenance-related risks like processing line downtime, or incident risks like fires, explosions, and equipment breakdowns. Finally, at the sales level, OGP is exposed to pricing risk. It doesn’t control the price. The only things it can control are: (1) when to sell, and (2) how much to sell. But both of these factors can have a big impact. Does OGP sell everything that it mines in a quarter? No. In fact, it sold 86.4% of the gold that it produced in Q1/25. OGP has a stockpile of ore (to feed the mill) and a stockpile of gold (to sell) that it can pull from to smooth income. In that way, OGP is a lot like Semirara [SCC 32.60 ?0.1%; 99% avgVol] back when coal’s price was peaking and SCC’s production was marred by plant downtime and bad weather. It doesn’t stop shareholders from watching the spot price of the commodity rise and developing big expectations, and in a lot of ways, that feeling will never go away.
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