OceanaGold [stock_market_widget type="inline" template="generic" color="default" assets="OGC.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] has failed to take advantage of the gold price rally. Shares of the miner are down more than 30% so far in 2019 as its declining production has come in the way of improving gold prices. Let’s take a closer look at the problems faced by OceanaGold and whether investors can expect a turnaround.
OceanaGold Is Struggling to Increase Production
In the second quarter of 2019, OceanaGold delivered revenue of $186 million, down from the prior-year period’s figure of $205.7 million. This 9% drop in the company’s top line was a result of lower production.
OceanaGold produced 125,609 ounces of gold during the second quarter of 2019. This was lower than the year-ago period’s production of 138,948 ounces. The company cited “challenging mining conditions impacting first-quarter production at Haile” as the reason behind its weak output.
Though management tried to paint a rosy picture of the company’s results last quarter, OceanaGold investors should not ignore the reality as its cost metrics increased year over year. The company’s consolidated all-in sustaining costs in the second quarter of 2019 came in at $1,118 per ounce. The same figure stood at a way lower $696 per ounce in the year-ago period.
The massive spike in OceanaGold’s cost base and its lower output was enough to dent the company’s bottom line performance. It delivered EBITDA of $70.7 million in the second quarter as compared to the year-ago period’s figure of $109.7 million. Net profit also shrunk by a big margin to just $15.3 million from $44.6 million a year ago.
So, it is not surprising to see why investors have decided to dump OceanaGold stock even though the price of the yellow metal has been on the rise.
What Next for OceanaGold?
OceanaGold’s weak financial performance is expected to continue in the third quarter. Analysts expect revenue to drop 10% when the company releases its results later this month. However, analyst estimates indicate that OceanaGold could start making a comeback from the December quarter onward.
But it remains to be seen if the company can actually deliver on that front, and investors shouldn’t be buying OceanaGold stock just yet in the hope that it will turn around since the company trades at an expensive trailing price-to-earnings multiple of 38.
If it misses Wall Street’s targets the share price could crash big time as the market has been anticipating a growth in the latter half of the year. Meanwhile, OceanaGold is currently thin on cash. It has total cash of less than $85 million on the balance sheet, while total debt is way higher at $193 million.
As such, it doesn’t make sense to bet on OceanaGold until and unless there is a strong turnaround in its production performance. If that doesn’t happen, OceanaGold won’t be able to take advantage of the gold price rally and will continue to underperform on the stock market.
