It is almost time for PDAC, one of the world’s largest mining shows held annually in Toronto. March 1-4 are the dates, and for investors scouting out resource investments, this is a great place to venture as companies large and small are in attendance and want to make you aware of their wares. At least one of us has attended almost every annum for more than 30 years, during fat times and lean for gold and commodity prices. When valuations are up, the place is rocking; when down, as one attendee said, “You could shoot a cannon down the aisle and not hit anyone.” With the gold price being reasonably sweet and getting sweeter, 25,000 plus should be in attendance this year.
While we wrote about our success with better than a triple on Alacer Gold in August, Orvana Minerals has proven more problematic for Benj. Purchased just over five years ago at $0.28, it currently trades at $0.22. The initial sell target was set at $1.24 and that price seems as close to reality as fool’s gold being the real thing, with the $0.41 reached in July being the high-water mark since being acquired. The question then becomes, when is it time to cut and run?
Orvana operates in Bolivia and Spain. Revenues for the past eight years have always been north of US$120-million, except in 2016 when they slipped to US$94-million. One hitch though is that only in 2012 and 2013 did the company turn a profit. Otherwise the loss has been between US$5-million and US$23-million, with last year being the “best." While one hopes that the trend is a friend, that is unlikely given that production was stopped at Don Mario in Bolivia in November. The enterprise is hoping that operations will resume in 2021.
At OroValle (ORV) in Spain, debt was restructured for four years at 2.25 per cent. Costs are being lowered and recovery rates remain steady. But a major difficulty is that consolidated production between Bolivia and Spain will likely be about one-third lower than the 97,259 ounces produced in fiscal 2019. Though about US$8-million remains in the till, that is about one-third of the cash two years ago. Fortunately, ORV is a subsidiary of Fabulosa Mines Ltd., and this outfit has been a strong supporter in the past.
Meanwhile the organization is looking at development opportunities in Argentina and Peru. The Taguas Mine Project was purchased in the former last year. While this is in a prolific mining belt, these are early days for this prospect, indicating a wild card.
Orvana is different than many of the mining wannabees who raise money from the public and turn it into a sinkhole without seeing a drill touching terra firma. ORV is a business with a track record, albeit spotty. Perhaps that is one reason that the CEO position seems to be a revolving door although Juan Gavidia has been with Orvana since 2016 and took on the CEO mantle a couple of years ago. He is an experienced long-term hand in the industry having worked eight years for Newmont.
Of course, much of Orvana’s future success will depend on the price of gold. We don’t have strong feelings on where it might go in the future but appreciate how the price increase of the past couple of years and recent jump has helped many companies in the industry survive. A drop in the value of the American dollar, which does seem reasonable given the huge debt and deficit, would likely help gold appreciate.
The question is constantly raised to us, “Buy, hold or sell.” While the answer is usually reasonably clear, in this situation, it is far less so. When that situation appears often our course of action is to do nothing, except monitor the situation, which is the case here. Benj will continue the due diligence and talk to management at PDAC and attend the AGM on March 5 in Toronto.
Benj Gallander and Ben Stadelmann are co-editors of Contra the Heard Investment Letter