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Why the OceanaGold share price tumbled 9% lower on Tuesday

The market may be charging higher today, but the same cannot be said for the OceanaGold Corp (ASX: OGC) share price.

In afternoon trade the gold miner’s shares are down almost 5.5% to $4.56. At one stage they were over 9% lower at $4.36.

Why is the OceanaGold share price tumbling lower today?

Whilst a decline in the gold price overnight has weighed on the shares of gold miners such as Newcrest Mining Limited (ASX: NCM) and Saracen Mineral Holdings Limited (ASX: SAR) today, OceanaGold’s shares have fallen more than most due to an announcement made after the market close on Monday.

That announcement was the gold miner’s production and cost guidance for FY 2019.

According to the release, management expects production of 500,000 to 550,000 ounces of gold and 14,000 to 15,000 tonnes of copper at an AISC of $850 to $900 per ounce.

The compares to its FY 2018 guidance of 515,000 to 545,000 ounces of gold. And in respect to costs, as of the end of the third quarter, year to date its ASIC was averaging $751 per ounce sold.

Investors appear very disappointed that production will be roughly flat but costs will increase by 13% to 20% on its year to date average.

Management explained that this is mainly related to increased mining costs and inflationary cost pressures in some consumables, steel grinding media, and labour.

Should you buy the dip?

Although at this level OceanaGold will still be a very profitable gold miner, it is disappointing to see its margins narrow.

I wouldn’t be a buyer of its shares at this point as I believe they are fully valued right now.

As such, if you were looking for exposure to gold, I would suggest you look elsewhere in the industry. Newcrest Mining and St Barbara Ltd (ASX: SBM) could be worth a closer look at current levels.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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