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Orosur Mining is one of the better gold plays on AIM

By Gary Newman | Wednesday 7 September 2016


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


When it comes to smaller AIM listed gold producers, then Orosur Mining (OMI) looks to be one of the better ones around.

Usually I am very wary of these small companies that have seen large rises in share price, which has been the case with Orosur since hitting a low of around 4.6p last December, as compared to the current level of nearly 19p to buy.

But we also need to consider the share price in relation to that of gold and the production costs for the company, and back in December 2015 Orosur was borderline profitable on just a production basis, and without taking into account the costs of running the company itself.

With gold having found strong support around the $1300 level in the past week and having then bounced back to the $1350 area, things are still looking bullish for the metal, and even if it was to settle around here then it would be great news for Orosur.

The company's most recent set of financials, the final results up to the end of May, were positive even though it still made a net loss overall, and given the average gold price since then, the next set of results should be far more impressive.

The company managed to far exceed it guidance of 30,000 ounces for the year, producing 35,773oz, and at the same time also managed to reduce its costs as compared to the previous year, although these were slightly above expectations.

This certainly isn’t one of the lower cost producers around, and the big risk here is a drop in the price of gold back towards operating costs of $877/oz and all-in-sustaining cost of $1,069/oz. So were gold to show any signs of a serious reversal back downwards then that would definitely be the time to be selling, and you really should be watching the commodity price, as well as the share price here.

During the last financial year Orosur received an average of $1,154/oz and that resulted in a gross profit of $800,000, which doesn’t sound a lot, but is favourable when compared to the $3.8 million gross loss it made the previous year.

By my rough calculations, if the company were to produce 35,000oz for the current year (guidance is for 35,000 to 40,000 ounces) and if gold prices were to stay buoyant to the extent that an average of $1,300/oz was achievable, then that should bring in a gross profit of $6 million or so, which I would expect to result in a reasonable net profit being made – the company actually made a profit of $1.4 million last year before write-offs and impairment charges.

Orosur is pretty much debt free, aside from a total of $400,000, and had $4.3 million in the bank, along with net working capital of $7 million, so there are no real nasty surprises to come with this one on the financial front.

One slight concern with its producing San Gregorio mine in Uruguay is depletion of reserves, with 500,000oz already having been extracted and, unless more can be added, based on current levels it could only have a mine life of around three years remaining. The company is taking measures to try to resolve this problem, with further drilling being carried out – 3,000m of drilling is scheduled with the aim of increasing reserves - plus it is assessing its open pit projects now that the gold price is exceeding the $1,300/oz breakeven or thereabouts on those.

It also has exploration projects in both Chile and Colombia which could add further value if any come to fruition.  

One other slight concern would have to be the recent sale of 1 million shares by non-executive director Pablo Marcet, who now holds 1.23% of the shares in issue, having sold at just under 19p, but a fair chunk of the 100 million odd shares in issue are still held between various funds and the board. There is also a relatively small amount of potential dilution as well from outstanding options and warrants, which equate to around 6.6% of shares currently in issue.

It is riskier buying after the recent rises, but if gold continues to stay strong then I can see further upside even from these levels, and any potential negatives such as depletion of reserves are more likely to have an impact a year or two down the line, so it is at least worth considering a position here in the shorter term I think.


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