Australian-listed Orinoco Gold (Ticker: ASX:OGR) (OGR:ASX) is endowed with expansive central Brazilian gold and silver assets, most notably the Company’s 70% owned Cascavel Gold Project, within the Faina Greenstone Belt. Orinoco could have one of the cheapest risk-adjusted valuations of any gold company on the planet. Of course, many emerging gold producers presumably make stake to the same claim. What if I told you that Orinoco Gold has one of the strongest natural resource sector management teams and Board of any company with a market cap under US$ 50 million (my opinion only, I’ve spoken with several of them). A Company that’s expected to be commence production in 5 – 6 months, a fully permitted & fully funded high-grade gold project with all-in sustainable costs estimated at roughly US$ 700/oz. CY 2016 gold production of ~20,000 ounces, (~14,000 ounces net to Orinoco) and a major prospective silver deposit beneath the gold.
Orinoco is also making robust progress at its nearby 100% owned Sertão Gold Project. Orinoco intends to largely self-fund the Sertão Project and may never need to access the equity markets again, (my opinion only) except for capital for accretive, tuck-in acquisitions. Orinoco acquired the Sertão minning leases, including the past producing Sertão Gold Mine, from Troy Resources in February, 2014. The leases are located 28 km by road from Orinoco’s high-grade Cascavel Gold Project. The Sertão Gold prospect is located on an existing mining lease, and boasts historical production of 256,000 ounces of gold at a remarkable grade of 25g/t from a shallow open pit. Sertão offers meaningful potential for additional high-grade, coarse gold, discoveries.
Longer-term there’s the Tinteiro prospect, a poly-metallic discovery located in the central portion of the Faina Greenstone Belt, just 4 km south-west of Cascavel. Sample silver assays at Tinterio include:
- 17.5 m @ 1,263 g/t Ag
- 25.0 m @ 39.2g/t Ag: including 3m @ 97.2g/t Ag from 114m
- 4.4 m @ 760.3g/t Ag: including 1.05m @ 2,510g/t Ag from 157m
- 4.7m @ 58.6g/t Ag: including 0.85m @ 236g/t Ag from 162m
In October, 2014, Orinoco materially increased the size of its Cascavel Project after securing a 70% interest in the Garimpo prospect, a nearby tenement with known gold mineralization. The tenement is situated to the north of Cascavel and Tinteiro’s polymetallic prospects. Garimpo contains promising north-west extensions of both Cascavel & Tinteiro, extending the known Cascavel structure by 60% to approximately 4km of strike. I truly believe that Orinoco’s three highly promising deposits,Sertão, Tinteiro and Garimpo could be worth the Company’s current market cap of US$ 17 million.
As impressive as what Orinoco DOES HAVE is what the Company does NOT HAVE. Dozens or hundreds of millions of remaining cap-ex, to reach cash flow positive operations, severe geopolitical risks in places like central Asia or western Africa, management members drawing high salaries and working in cushy offices in London & Vancouver, (rarely if ever visiting the so-called “project” site) and high op-ex of $1,000/oz + that might have played well in 2011, but not so much today in high cost places like northern Canada and Australia. By comparison, consider a Management and Board, led by Orinoco’s 3 Co-Founders. Importantly, 9 of the 12 listed personnel on Orinoco’s website have either direct exposure to Brazil or are long-time experts in mining or BOTH. [Please visit list of Management & Board members.]
Managing Director, Mr Papendieck, Diploma of Law from the NSW Legal Practitioners Admission Board (Dip. Law, NSW LPAB).
Chief Geologist, Dr. Marcelo De-Carvalho, (Metalogeny), PhD (Metalogeny & Geochemistry), CREA.
President Brazil Operations, Dr. Klaus Peterson, M.Sc (Mineralogy & Petrology), PhD (Mineralogy & Petrology), AusIMM, CREAM.Sc (Mineralogy & Petrology), PhD (Mineralogy & Petrology), AusIMM, CREA.
Orinoco’s management and Board separate it from dozens of companies clamoring, hoping, desperate to get bought out before hitting the liquidity wall. Boots on the ground is one of the most important factors in getting a mine over the finish line. The Company contracted a local mining team with 20 years of experience, including geologists, mining engineers and metallurgists. There are consultants, senior Management and Board members willing and able to bring Cascavel into production within 5 – 6 months. There are a number of employees living in Brazil year-round. I took comfort and was greatly impressed by both how many employees are on the ground in central Brazil AND how much credit senior management attributed to them. They are not labors, but key stakeholders in Orinoco’s success.
A company that trades nearly 500,000 shares daily, Orinoco Gold is flying under the radar because stakeholders have been entirely focused on bringing Cascavel to life. But first, it’s my job to bring Cascavel to life for those readers looking for attractive risk/reward opportunities. The Cascavel Project hosts high-grade, structurally-controlled, coarse gold shoots, where underground sampling returned bonanza grades including 15 meters grading 88g/t. Bulk samples of (350 meters north) and (90 meters south), respectively with recorded grades of 27g/t gold (2.8 tonnes) and 39g/t gold (500kgs) respectively.
What might investors and prospective investors be missing? One thing that is that the Cascavel project contains a non JORC-compliant resource, but that’s not as uncommon as it seems. With coarse, high-grade vein systems, drilling A LOT of holes could still fail to give evaluators comfort enough to establish a JORC-compliant resource. Even bulk sampling is not necessarily accepted for a JORC-compliant resource. So the question for Orinoco was, should it try to become JORC-compliant company spending a lot more time and money? Or, should it focus capital on moving into small-scale production? In this case, an estimated 20,000 ounces of gold in 2016, (14,000 ounces net to Orinoco). The Company made the decision to go for it. No matter what I or anyone on the Board or Management team says, some will stay away from a non JORC compliant resource. This is a blessing and a curse. While fat cat hedge fund types might wait for clear signs of value, smaller investors can dive in and possibly make considerable profits before the, “smart” money piles in.
Most readers may not recognize that the bulk of Orinoco’s mine development expenses are in the Brazilian Reals, a currency that has cratered vs. the $US dollar. As a result, in Brazilian dollars, the gold price is near an all-time high. I know this might be difficult to understand at first blush, but I did the math. That’s why with 14,000 ounces of gold (net to Orinoco) next year, the Company could generate approximately US$ 5 million in cash flow (not revenue, not gross profit, true cash flow, before cap-ex). That’s impressive for a company with a US$ market cap of US$ 17 million. Note, this assumes a US$ price of gold of 1,100. Gold prices above US$ 1,100 could generate substantial leverage to the underlying price of gold. An increase in the US$ gold price from US$ 1,100 to US$ 1,200 would be a 9% gain for physical holders of gold, but a 33% gain for Orinoco investors.
But wait, there’s more. Orinoco plans to double production to 40,000 ounces of high-grade gold in 2017 (28,000 net to Orinoco) while the percentage of leverage, 9% vs. 33% would not change, cash flow before cap-ex could double to US$10 million on a US$ 17 million market cap. Remember, that’s on an uptick in gold price by $100/oz to US$ 1,200/oz. Each $100/oz gain generates $5 million of incremental cash flow for Orinoco, all else equal.
Orinoco Gold (Ticker: ASX:OGR) (OGR:ASX) is a speculative, small cap company, with limited trading volume. An investment in Orinoco Gold is not suitable for all investors. Readers and investors are encouraged to do their own due diligence before buying or selling stocks, especially small cap stocks. Due diligence should include consulting with one’s own investment advisor. The author, Peter Epstein,CFA, MBA owns shares of Orinoco Gold. Mr. Epstein is not a registered financial advisor. Readers should take this fact into careful consideration.