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The ASX stock left behind by the gold rush

Investors have been bitten by the gold bug! The precious metal is in hot demand as the trade war, economic jitters and the prospect of zero interest rates cast a long shadow over the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index.

This in turn has lit the fire under our gold miners with many sitting on double-digit gains over the past year. This includes the Newcrest Mining Limited (NCM) share price, the Evolution Mining Ltd (ASX: EVN) share price and the Saracen Mineral Holdings Limited (ASX: SAR) share price.

Funnily enough, not all gold miners are actually trading in the black and one such example is the OceanaGold Corp (ASX: OGC) share price, which has fallen around 8% over the last 12 months.

This represents a buying opportunity, according to UBS, as its underperformance has opened a big valuation gap with other gold stocks on the ASX 200 gaining around 40% over the period.

How OceanaGold lost its shine

The market is punishing OceanaGold due to problems at its Didipio and Haile projects with the former hit by regulatory issues while the latter is struggling with performance issues.

There’s a big upside for OceanaGold if it can overcome one or both these issues.

“We assess that the share price does not include value for Didipio so resolution would be a materially positive catalyst,” said the broker.

“Sequential production and cost improvement over the coming quarters at Haile should also in our view be positive catalysts.”

Problems at Didipio

The miner is trying to get its lease at Didipio in the Philippines renewed since April last year. Management appears to be very confident of a positive outcome as it says the project has strong support the project has from regulators and the office of the president of the country.

However, the local governor has blockaded the mine and management is trying to reverse this action through the federal court.

The blockade means nothing is getting in or out of the facility and there’s around US$50 million worth of concentrate stockpiled at Didipio that’s ready for shipment.

All Haile a turnaround

Meanwhile, the first half production report for Haile was worst that expected due to flooding following a big storm.

There are signs that Haile is on a turnaround though, according to UBS.

“The mine is now much better equipped to deal with water as more pits have been opened which provides flexibility and a water retention dam constructed. The top levels of the mine management are new and improving productivity,” said the broker.

“New equipment including 2 excavators is at site and new trucks are being constructed and progressively delivered over the next 5-6 months (2x a month). Employee turnover has fallen from 40% down to 20%.

“While delayed, the vision of lifting production from ~150kozpa now to >200kozpa over the next 3-4 years remains intact.”

UBS has a “buy” recommendation on OceanaGold with a 12-month price target of $4 a share.

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Motley Fool contributor Brendon Lau owns shares of Evolution Mining Ltd. Connect with him on Twitter @brenlau.

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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