Production is now in crisis.
Looks like the viable pipeline is running out.
Debt $1.7-mn v Cash 1.3-mn
And only 27k-oz pa now targeted; was 35k just 6 months back.
120 staff gone since then.
But 27k-oz probably won't cover the fixed costs, even with $1,350/oz POG, unless maybe exploration + dev. goes to 0 .
"Directors and officers agreeing to reduce their fees and salaries by 20%."
That tells you things are seriously bad.
Anza isn't even close to JORC .
No cashflow for that.
So, the typical little bob up/reversal in the sp on the decent enough Anza drill news was quickly followed by further selling to new lows [8.5-9.0p spread now], despite POG remaining well above $1300/oz; rather as I'd expected.
My previous post contained a 'typo'; the OMI AISC is of course running ABOVE the 200 day POG moving average; maybe less than $60/oz above now but still just as disconcerting.
"If the latest AISC of $1455/oz is unrepresentative because of the down time, the previous quarter's figure of $1,345/oz is only just at the recent highs for the POG and ~$70/oz below the current 200 day moving average."
I'm wondering if there's a price I'd like to buy on an oversold basis but short of the POG rising convincingly above $1400/oz am struggling to justify one.
I concur with Mr Business.
Sadly Orosur is pretty much engaged with a survival strategy and has been the past year and more; arguably since the POG dropped below the $1,500/oz level [Apr13] that underpinned it's previous growth strategy [+ proposed dividends].
If the latest AISC of $1455/oz is unrepresentative because of the down time, the previous quarter's figure of $1,345/oz is only just at the recent highs for the POG and ~$70/oz below the current 200 day moving average.
This is unsustainable over a prospective timeframe beyond anther quarter or 2; indeed the modest cash balance is being gradually whittled away.
The reduced production from ~35k-oz-pa to 30k has to cover much the same fixed costs, whether that's for the plant [repairs/renewals], directors, exploration/dev. , infrastructure [including tailings dam] ....or whatever.
So, what was a breakeven operational cost of $900/oz at 35k production will need to be under $850/oz at 30k prod.
This cannot be achieved from open cast extraction; hence the recourse to underground means below the hollows of old o c pits.
When I sold out my final holding [Apr 2017] I thought a POG RELIABLY above $1,400 would enable Orosur to make a come-back in Uruguay, resuming at least 50k pa from open pits but even this may be insufficient.
What of Anza?
Well, there's hope I guess but a long shot imho.
If there is to be development and production, well at present there's:
No Columbian production team.
No cashflow from Uruguay to fund the above.
So, even a shallow extraction of easy to leach [oxide] ores through heap leaching means is going to require several $millions just for a minimal scale production operation.
Extensive exploration to prove a large, high quality, measured [JORC} resource [if it's there], will require $10's millions.
High interest debt or share equity dilution?
Take your pick.
Might conceivably be better [safer anyway] to just do a moderate JORC, sell Anza, bag the cash and hope the POG does indeed soar .....whenever......and that cash can fund a Uruguay revival.
Was contemplating a fresh buy at sub 10p but the temptation has receded on examination.
AAZ remains my sole Gold mining play.
Shruggie, the latest All In Sustaining Cost is a horrifying $1455. If you are expecting gold to hit $1500 soon then this is a great share, but I have held it a long time and I see the AISC marching up in advance of gold. The company has been hanging on by its fingernails over the years it seems to me, am I missing something, how much do you have?
These initial results are extremely encouraging, supporting the presence of high gold mineralization over significant intervals and increasing confidence in the mineral body beyond the 17,000m of previous drilling prior to the acquisition of the project by OMI.
These results are merely the beginning of Orosurs first drilling campaign at APTA. APTA mineralization remains open at depth and along strike.
The gold price has rocketed above $1320 today. And this morning's results look pretty impressive with:
- a $2m PBT
- a $3m cash pile even before the recent additional fundraising
- consistent production and operating cost outlook from SGW
- Anza drilling results to look forward to
- plus potential news re exploration in Anillo and in Uruguay
"Orosur Mining (OMI), digging for gold in Uruguay, Colombia and Chile, is metals and mining expert Asa Bridle's top pick.
"With practically no debt, and production expected to be stable at the San Gregorio operations in Uruguay over the medium term, Orosur can use the future cash generated from its mines to fund both further production development in Uruguay and a significant exploration drilling programme on the exciting Anzá gold project in Colombia," writes Bridle.
"Positive outcomes from either or both of these campaigns would represent notable, value driving, progress for the company as it looks to become a more significant gold producer based on multiple, long life, operations."
Sold out of these a few months back, having held some for several years.
Main reason was that OMI remains a high risk/geared play on a high/rising gold price and the prospects for the POG to soar are far from compelling for the foreseeable future.
I doubt the POG will now go much above $1,300/oz at all this year; OMI only becomes truly attractive at ~$1,400+/oz.
The other main reason is the lack of much in the way of a pipeline of reserves.
While I don't doubt more will be found in Uruguay, the decent grades will require a series of underground developments for which the CAPEX will pretty much exhaust the cashflow generated at ~$1,250/oz POG.
Alternatively, Orosur could go for further open cast pit development-production, with much lower CAPEX but the grades are almost invariably much lower and just the operational costs will be ~$1.100/oz or higher from the past several years experience.
So, either which way or blend there-of, the AISC looks to be ~$1,200/oz, if all goes to par, without any serious mishap, [San Gregorio underground-pit-series output basis] over next 2-3 years; could well be higher.
Conceivably an AISC of $1,100/oz or even a tad under may be achieved; I'm not at all confident it will.
The sub $1,000/oz AISC reported by ORosur over patches of the past 2 years looks a headfake to me; it's only achieved between the serial pit development phases.
During the development phases, [every 12-18 months pretty much], the CAPEX ramp sends the AISC over $1,300/oz.
Orosur's figures, not my supposition!
As for the other Assets:
1. Well, Anza may be the future but not without a load of CAPEX and that will either mean a shed load of debt at risk premium rates or Capital raising and the spectre of share dilution or a mix of the 2.
Best of luck with that.
But maybe with a decent JORC the asset could be sold for $several-mn profit and could finance a phase of in-depth exploration and development in Uruguay, in the IC belt where the mill and current ops are focused.
Makes sense from the management/employees/Uruguayan perspective; keep jobs, salaries + maybe share option profits and tax revenues flowing.
2. As for Anillo, well it's very unlikely to be a latent El Penon; far more hope than realistic expectation of a bumper find.
Orosur let Pantanillo go for nothing, despite having proved there were extensive and accessible ores there to mine, albeit of low grade.
They spent $millions on exploration there, probably over $10-mn over several years.
OMI were telling investors for years that the asset was commercially viable for production at POG>$1,200/oz.
No surprise they let Pantanillo go quietly; especially given the previous debacle of Talca which wrote off ~$13-mn from memory.
Well, that's that as far as I'm concerned.
Best of luck if you're still holding; think you'll need that if the POG doesn't at least average $1,300/oz the next 2-3 years.
Good to extent the CAPEX has resulted in reserve expansion; await Orosur's new measurements to gauge how much.
As previously however, I can't see a lot to revel in about the production situation.
There's $2.4-mn in the bank v $5.4-mn at end of the last quarter and that's after more than 3 months of full production out of SG West. So, $3-mn cash has been consumed by:
"additional development capex associate with the SGW UG mine, including ramp, access and ventilation shaft work."
Hence the All-In-Sustaining Costs remain well above the av. POG for 2nd quarter in a row.
They were $1,345/oz the previous Qtr; $1,289/oz this one; so above $1,300/oz for the half year when the POG sold averaged more $100/oz less.
OK, so costs will almost surely come down a lot for the next Qtr and probably the one thereafter. The cash will build again. But the current estimate for SG West extractable reserve is 30,000-oz; maybe 30-35% has already come out by end of Q3.
By end of Q1 there'll be another period of CAPEX/development starting if they are going to switch into the SG Central [or conceivably SG East?] to achieve a relatively uninterrupted Gold output in line with their 35-40k-pa target.
OMI remains a high risk, highly geared play on the POG.
Short of something spectacular emerging out of Anza, the POG v AISC for Uruguayan production will remain the price arbiter here.
"Broker slaps big price upgrade on Orosur Mining
11:25 24 Jan 2017
A new price target from Cantor Fitzgerald points to potential upside of over 150% at Uruguay-based gold miner Orosur Mining International PLC (LON:OMI TSE:OMI).
Orosur runs San Gregorio, the countrys only gold mine and is making significant progress towards defining new deposits and reserves close to its existing operations argues the house broker.
We note a new determination on the part of the company in replacing reserve at its operations in Uruguay where exploration is underway on extensions to the new SGW underground workings and at nearby open pit targets.
In addition, it has recently made a commitment to drilling its Anzá project in Colombia which should lead to a maiden resource estimate.
At San Gregorio, Cantor said it has been impressed by the smooth transition from the underground workings at Arenal to SGW (west).
The miner has reiterated its production and cost guidance for 2017 at 35-40,000oz and US$800-900/oz respectively, but Cantor is going for 36,600oz, leaving the company with 19,800 oz to produce in the second half or 18% more than in the first six months.
As the new SGW mine stabilises during the period and open pit production is maintained, we believe this target should be comfortable. The broker's estimate for cash costs has also been trimmed by 3.5% to US$816/oz.
Based on our revised estimates and current peer group multiples our US dollar valuation for OMI rises by 13% to US$54m (C$0.73/share) but at current exchange rates the sterling target price rises by 36% to 44p. Buy is the investment view.
Shares in London rose 1.5% to 16.75p. The miner is also listed in Canada."
OK, so Salazar did flag the Q2 costs would rise due to the Arenal->SG underground transition.
Not sure what investors expected but is an AISC of $1,345/oz actually a cause for celebration?
It's up by over 30% from Q1 when it dipped bel0w $1,000/oz.
Much the same story for operational costs; they were sub $700/oz in Q1; $914/oz Q2.
The share price has popped from 11-something to 16.3p this morning on the back of an inconclusive rally in the POG and in anticipation/realisation of these results the past 2 weeks or so.
Yet, when the POG was enjoying its Bull run in the $1305-1375 range, the sp struggled to beat 20p.
So, relative to that, 16+p looks weirdly optimistic.
Sure, there's going to be better production stats from SG West underground in Q3 and moreso in Q4; but there's only about 30k of gold to come out before the next $several-million of CAPEX is required to develop the SG Central deposits mine or where ever is exploited next.
Nice there's $5.4m of cash in the bank; hope it gets built up further before the next development phase commences.
Nothing new of moment on the exploration/reserves front in these results; guess this must be some kind of relief rally on the SG West mine production actually going to plan, plus some optimism for the POG in 2017.
Apparent market reaction today is decidedly -ve; maybe as focus is on the next quarter results having higher costs/lower production due to completion of transition from Arenal into the SG underground [West side/upper] mine and production ramp up thereof.
On the other hand, the detailed analysis of the 4 SG ore bodies is quite encouraging. An extension of reserves and mine life looks very probable; hopefully during next few weeks.
Plus, although the SG grades aren't that great, they are relatively accessible and cheap to develop compared to what it cost with Arenal.
But as ever, all is highly sensitive to the POG.
We are on a razor edge here.
As this report concurs: "Reflecting the companys short mine life, a US$100/oz (ie 10%) change in the US dollar gold price has a material effect on our base case valuation of anywhere between 90% at the lower end of the range, to 24% at the upper bound value of US$1,500/oz."
Maybe this spooked some investors.
Hmmm....at least Edison have been tolerably conservative in their POG forecasts for the next several calendar years. $1275/oz for 2017 [previously $1347], $1220/oz for 2018 [was $1408], $1283 [$1484] for 2019......
Yet the profit, earnings per share and share price forecasts are not dismayed.
Far from it.
Well at least they seem plausible; the reasoning is at least worthy of serious consideration.
It looks to me rather as if the Orosur game plan is to carry out a carefully targeted, ongoing development/production plan, over the next 5+ years, focused in the Isla Cristalina belt, rolling from new pit to new pit, on a 1-2 year turnaround, churning out ~40k/pa gold: ~30k underground/~10k open pit.
Anza in Columbia will, it seems, provide some of the above gold [from 2017H2?]; the hope being the cheap method of extensive heap leaching can be utilised for the grades and [oxide?] ores available.
Just to re-iterate the obvious basics:
Orosur is essentially a high risk, geared play upon the POG; always has been.
It is also a momentum stock; one for which price up-surges from beaten down levels almost invariably follow on from those in the big, liquid PM miners.
Conversely, expect mass desertions when the going gets tough; the long term case curries little favour with momentum investors. Traders more than investors really.
If I knew that Gold is going to descend into another bear phase, I'd sell all my OMI shares.
Might miss out on a 'White Knight' buyout but that's quite some gamble.
Otherwise, it's a sure bet the sp would fall towards previous lows and if the POG were to go decidedly sub $1,050/oz, even lower.
If I knew this Bull run is going to re-ignite, which pretty much requires the $1,400/oz level to be taken out, then I'd buy a big stash; could be even 10%+ of my portfolio.
I'd be posting here with Cawkwell like gusto.
Being pretty conservative, I doubt I'd go overboard on any single AIM PM miner; the stock specific risk is simply too great.
Having said.....Orosur/Salazar/Uruguay.....looks a dependable outfit, genuinely run with shareholder interest well to the fore, in a stable and reasonably 'friendly' country.
Right now, we are at a pivotal point as to whether the Gold bull run continues or nay.
Each to their own as to the limits for this.
There's a fair few analysts etc that say the springtime lows of ~$1200/oz are their bottom drawer support level. These often seem to say that the POG is very Fed driven and are looking for a scenario of 1/4pt rise in Dec. followed by a prognosis of, at most, 2 more in 2017, then done as a new global recessionary cycle takes hold.
Others say that if the $1,250/oz support caves.....game over.
My take is that because Salazar has Orosur set up as best it can to weather low gold prices, it's worth holding a core, at very least while the $1200/oz level holds, if it comes to that.
Buying at that level is basically a punt that it is indeed a bottom and at very least the $1300+ prices of late are revisited.
If that's as good as it gets, OMI becomes a trading game imho.
There will be good gains to profit from on up momentum and rapid, deep plunges on either disappointing results or if the POG prognosis wanes yet again.
I'm hopeful that the POG will at very least consolidate sideways from here through 2017, supported by ongoing debt-deflationary pressures in developed economies, hence continued monetary largesse and low real interest rates/yields; central bank gold buying ongoing, Asian physical support still ongoing: +ve correlation with growing wealth.
I will retain a core holding accordingly and add on favourable Orosur news-anticipation, POG expectation or on sell offs when the investment case hasn't deteriorated much, if at all.
Yes, Orosur can make money at ~$1,250/oz.
Not a lot.
Enough to keep going in Uruguay for as long as they can find more of the same; that means extending/replicating Arenal - San Gregorio.
Seems to me that $1,300/oz is the level above which this scenario becomes more rosy and secure.
If nothing goes wrong...enough cash generation to fund a bit more exploration and development: Of Anza, Anillo and Uruguayan open pits.
I don't see substantial open pits production unless the POG goes above $1,400/oz and the average stays thereabouts for several months.
Yes, there are always other considerations, such as the strength of the $US v the Peso or as you suggest fuel prices. Clearly these will matter much more when, as now, the POG supports only a modestly profitable prognosis.
Each to their own on these.
You'll have to judge how far and for how long changes will happen and Orosur's ability to adapt to them.
Fwliw, I don't think anyone can reliably forecast the exchange rate; ditto fuel costs though my expectation is that they will more likely average up from here over say the next 2 ye
"Finally, Orosur (OMI) has come up with stunning figures this morning.
Cash is at long last rolling in. Of course it can be spent fruitlessly. But it is not fatuous to suppose that net of tax profit in the year ending 31st August 2017 will be north of USD10m and that cash will match it. It is time for OMI to indicate that it will pay material dividends. The CEO is calling in at Drayton Gardens this afternoon. I will give him an ear-bashing."
Again spot on, thank you. But your conclusion earlier yesterday is 'build/retain' a holding'. Is this based on POG staying around 1250, or rising? I.e. At current POG can Orosur fund its development and will it make money, and what is your view if POG falls back a bit/ oil price and costs rise? Thanks
"they do not have the funds to keep going in sub$1000 gold. ". Mr.B
The problem is more fundamental than a scarcity of funds; it's a lack of quality reserves.
If Orosur has to depend 100% on open pit production [with operational costs $1,100/oz at best] the POG will need to average at least $1,300/oz just to keep going at break-even with sufficient reserve replacement to be sustainable.
That's why the recent exploration results were so important. They show there is substantially more accessible gold in Arenal+San-Gregorio pits and vicinity.
Of course extending these, let alone developing another new underground mine will require a lot more capital. Still, given operational costs of $700-$900-oz, even a few years life might lower the viability threshold below $1,100/oz if not $1,000.
Pantanilo was supposed to be viable at $1,200/oz gold......but that's been let go.
Maybe Anza will come up trumps.
But will it then just get part developed and sold off?
Getting it into production is going to be very expensive [new mill etc] and risky for a small miner, even though Orosur has experience of this.
Yes, I think the shares have been continuously drifting below the analysts expectation since the target of 85p in early 2013, OMI has I think been a continuous buy recommendation with the expected price mostly way above the share price, as now, but sadly the share price, unlike expectation, is way down over the period, though recovered a bit so far this year....
A wise post, thanks. Omi has always been very geared to the price of gold (see the fall to end 2015), however hard they try to cut costs and extend mine life. It is still hard to tell if the rise in POG since January was a retracement in a long gold bear or a turning point, and the fall since July a retracement in a new bull? This is worrying for the price of likes of OMI as however they cut costs and more expensive production they do not have the funds to keep going in sub$1000 gold.
"Orosur maintained guidance for the current year at 35,000 to 40,000 oz of gold at operating cash costs of between US$800 - US$900/oz.
Cantor Fitzgerald said Orosur beat cost guidance by 18% and with the new underground mine at San Gregorio West and its ongoing exploration programme in and around its existing operations in Uruguay it is well- placed.
'Buy' is its recommendation with a target price of 32p."
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