Orosur Mining moves into profit as gold price spikes and costs tumble

South America focused gold miner Orosur Mining (LON:OMI, TSX-V:OMI) moved decisively into profit during the first quarter of the financial year thanks to a sharp rise in the value of the precious metal.

The company, which has operations in Uruguay and Chile, posted net income of US$3.5 million for the three months to August 31 compared with a loss of US$2.16 million a year earlier.

Cash costs from its only gold producing asset – the San Gregorio open pit in Uruguay – fell to US$839 an ounce from US$880, while production was steady at 12,937 ounces.

The average price the company received for its gold production jumped to US$1,216 an ounce from US$912.

Orosur has almost US$11 million of cash – up from US$8.7 million a year ago – which means it has the funds to finance its current exploration programme.

Production costs will tumble significantly once the company brings into production the Arenal Deeps project, adjacent to San Gregorio.

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” Ignacio Salazar, the company’s chief financial officer, said in a recent interview with Proactive Investors. 

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.

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. Meanwhile, earlier this month the exploration “resulted in positive drill intercepts at Vaca Muerta in Uruguay.

“In summary, operations are well on track, exploration has been delivering both in Uruguay and Chile, and financing in the medium term can be covered with cash flow from operations and debt due to the strong gold price and the result of the cost savings efforts,” chief executive David Fowler told investors today.

“Looking forward, drilling will continue in Vaca Muerta, Pantanillo and Anillo and other targets during the fiscal year and the board will within the next month review and decide on Arenal Deeps."