Since bottoming at the end of October, the MSCI Emerging Market Index (MXEA) and MSCI Asia Ex-Japan ...
Rhymes with Nirvana
10/19/2010 12:24 pm EST
A growing and appreciating gold and copper miner is trading at a discount to its peer group, writes Ryan Irvine, editor of KeyStone’s Small-Cap Stock Report.
Orvana Minerals (Toronto: ORV, OTC: ORVMF) is a Canadian mining and exploration company based in Toronto, which is involved in the evaluation, development, and mining of precious and selected base-metals deposits.
The company owns and operates the Don Mario mine, as well as property in eastern Bolivia, owns the El Valle-Boinás/Carlés project in Spain, and holds mineral leases in the state of Michigan, referred to as the Copperwood project.
In September 2009, Orvana moved forward with the transition from a single mine to a multi-mine operator with the $44.6-million acquisition of Kinbauri Gold Corp., and with it the El Valle-Boinás/Carles mine in northern Spain. With a $50-million investment, the mine is expected to begin production of gold, copper, and silver in spring 2011. Total annual gold production at the mine is forecast at over 114,000 gold equivalent ounces over an initial seven-year mine life, at an expected cash cost of $461 per ounce.
With Orvana's gold resource in the LMZ (lower mineralized zone) of the Don Mario mine in Bolivia depleting, the company began expanding production into the UMZ (upper mineralized zone). The result of this investment was an extension of the mine’s life to ten years, with annual production forecast at 47,800 gold equivalent ounces at an expected cash cost of $530 per ounce.
To generate future growth, Orvana has also invested in the development of its Copperwood project in upper Michigan. The preliminary economic assessment, which was released on September 13th, indicated a conceptual plan for annual production of 22,000 short tons of copper and 103,000 ounces of gold over a nine-year mine life, with production expected to commence in 2013.
Given total forecast production of 114,500 ounces of gold equivalent in 2011 and 162,160 ounces of gold equivalent in 2012, and assuming stable commodity prices, our conservative earnings estimate for 2011 is 24 Canadian cents a share. For 2012, it is 39 cents per share. This means the shares are currently trading at 10.9x 2011 [estimated] earnings and 6.7x 2012 [projected] earnings.
We believe this to be an attractive multiple, despite the recent share price surge. While we would expect consolidation in the near term, if your outlook is beyond one year, we would continue to rank the stock as a Buy and see it as inexpensive relative to its junior producer peer group.
(Editor’s Note: Small-cap “junior” gold miners like Orvana can be speculative and extremely volatile, and are appropriate only for the most risk-tolerant buyers who can afford to lose the value of their investment.)
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