Orosur Mining: Golden Prospects in Chile and Uruguay

IN THE past month Orosur Mining’s (LON:OMI, TSX-V:OMI) share price has advanced almost 60 per cent. 

The release on September 7 of the feasibility study on the Arenal Deeps deposit near its existing San Gregorio open pit gold project in Uruguay has been the catalyst for the hike in the company’s valuation.

Even after this spectacular performance the stock is trading below the level it was a year ago – yet the company’s prospects have changed beyond recognition.

Back in September 2009 Orosur was the loss-making owner of a single, low grade pit with a projected lifespan of just three years.

Today the company has pulled off a transformational merger with Fortune Valley Resources which brings in the Pantanillo gold mine in Chile with a maiden resource of over 1 million ounces.

Not just that, San Gregorio’s mine life has been extended by a further three years.

Meanwhile, the cash costs of unearthing the gold are expected to decline from US$825 an ounce currently to around US$550, thanks to the decision to go underground at Arenal.

That gives an average cost per ounce over the next five to six years of US$650.

Add to this the record price for the precious metal, and an improvement in the grade of ore being excavated in Uruguay and you see that Orosur has been utterly transformed.

“Last year we did not have the mine plan in Uruguay or the growth profile in Chile we have today,” says Ignacio Salazar, Orosur’s chief financial officer. “Yet despite the recent rise, the share price is still lower.” 

Page 10 of the Orosur’s latest presentation (which can be found on the company’s website) encapsulates the progress made in one short table. It shows that reserves have increased to 345,786 ounces at an average grade of 1.51 ounces of gold per tonne from 289,500 at 1.39 ounces per tonne.

Uruguay, Salazar says, will be the “cash machine” that will finance the development of Arenal Deeps and work on Pantanillo.

So there will be no need to issue shares to bankroll future development. It may take out a financing facility of US$4-5 million for plant and equipment. But if the gold price stays at around its present record level then even this will not be necessary.

Production for 2011 is projected to be in the order of 55,000 ounces of gold at a cash cost of $825. 

At a price of $1,250 an ounce of gold, the company would generate $20 million of cash, where last year it made $9 million based on an average price of $1,050.

“We are leveraged play on the gold price,” Salazar says.

Of course it is unlikely the gold price will remain at these levels over the long-term.

While there are some bulls who predict the next stop for the precious metal is US$2,000 an ounce, Orosur is insulated if the gold price comes off the boil.

That’s because the completion of Arenal Deeps brings with it a significant rise in the grade of gold being extracted, leading to that all important fall in the costs of extraction.

Work on the decline is scheduled to begin early 2011 with Arenal up and running by the middle of next year.

“To May next year it is all is open pit production and we start to produce from the underground by mid 2011,“ Salazar confirmed. 

The Arenal Deeps feasibility study, carried out by Amec, is a conservative assessment of the cash costs (US$545 per ounce) and the gold payable (135,000 ounces in total) and doesn’t take account of the silver that will be mined.

However the real excitement is provided by the Chilean properties acquired as part of the Fortune Valley deal.

Chief among them is the Pantanillo project that comprises 11,750 of hectares optioned from Anglo-American.

It is located in the Maricunga Belt, an area rich in gold which is home to 60 million ounces of the metal.

First phase drilling has defined a maiden JORC resource of 1.05 million ounces at Pantanillo Norte,  a small part of the total exploration area, and a second phase aims to build on this early impressive progress. 

“Right now we have targeted the oxidized and mixed portion of the deposit and have confirmed (a resource of) 1 million. (Former owners) Kinross and Anglo were heading for two or three, so we will keep  going and our objective of the next drilling campaign is to evaluate the deeper sulphide mineralisation which we believe is a significant exploration target” Salazar said.

A scoping study on Pantanillo began in June and will be completed by the end of the year.

“The study will look at the project and what we want to get from Pantanillo - whether we will concentrate on the oxide, or go for something bigger,” Salazar said.

A programme due to get underway by the end of the year will look also at other areas on the Pantanillo  property.

Additionally, Orosur has another Chilean project, Anillo, which is next to Yamana’s El Penon gold-silver mine, which produces 400,000 gold equivalent ounces a year.

Outside that, the group is investigating potential high grade porphyry targets at Incahausi in Chile.

For a company that only a year ago seemed to be going nowhere, this has been a major metamorphosis. It is now a junior with a producing asset and some very exciting gold and silver exploration projects. 

Let’s hope the market latches on to this.