Orosur Mining: A South American gold producer with plans to double output

AIM quoted gold producer Orosur Mining (LON:OMI) has ambitious plans to double output in the coming years.

The firm produces nearly 60,000 ounces of gold each year. Currently all of that comes from the San Gregorio operation in Uruguay.

Thirteen historical pits have been mined at the San Gregorio operation producing more than 1,000,000 ounces of gold over the past fifteen years.

The main San Gregorio operation still has a life of 5 -6 years from open pits but grades have reduced to an average of about 1 gram per tonne, and the mine currently operates at a cash cost target of about $810 an ounce. Sustaining capex is low.

Operating costs in dollars per tonne benchmark the industry.

With current gold prices the firm can net almost $800 an ounce. While this is a tidy sum, San Gregorio is not a low cost operation in terms of dollars per ounce cash costs. But this is changing.

Before the end of this year the Uruguayan government is expected to rubber stamp permits for Orosur’s newly developed Arenal Deeps underground mine. And potentially its first ore could be processed at the plant this month.

“We are in excess of 1,500 metres of development in the mine, in the main decline,”chief operating officer Luis Tondo told Proactive Investors.

Arenal Deeps will provide higher grade ore and that will vastly improve the mine’s economics, Tondo explained. He says that with the higher grade ore from Arenal Deeps (around 3 g /t) the mine’s average head grades could rise to “something like 2 grams per tonne combined with the open pit ore that still remains to be mined.”

“Obviously that helps us achieve a much better cash cost per ounce as it progresses and we start mining more material from underground.”  

“Once the underground mine is in full production, and that’s going to happen in the next two to three years, it will provide around 50 per cent of our total production.”

That will help slash the overall cash costs from the current levels of $810 down to about $650 an ounce.

“It will take some time for the underground production rates to peak. 

"But by producing the higher grade Arenal Deeps ore we expect costs to come down closer to industry averages.” 

Tondo explains that Orosur’s whole structure is geared towards doubling gold production in the medium to long term. The step up in production will not come from the Uruguay assets alone. 

Orosur also has two medium-term mine development projects with big potential.

Last year the firm completed a merger with Fortune Valley, which brought a portfolio of promising Chilean gold projects. 

At the moment the most advanced is Pantantillo. There the group has already completed two drilling campaigns and it has defined over 1 million ounces in gold resources. It has also carried out engineering studies and metallurgical testing. 

A scoping study is currently being finalised and it is expected to be ready before the end of this year.

“The results have shown that we’ve got a very good oxide ore in the deposit, in terms of its response to heap leaching and potentially run of mine dump leaching.”

“We are getting very high recoveries of this oxide ore. It is in a range of 75 to 80 per cent. For heap leaching that is very good.”

Orosur will first target the oxide ore, before looking at the mixed ore (or transitional ore) between the oxide and sulphide material. Tondo says that there’s potentially plenty of sulphide ore too that needs to be drilled out, although this won’t be targeted right away because heap leach recoveries aren’t as good for this material. 

The Fortune Valley acquisition was an important step towards the group’s future growth and it added much needed diversity to the portfolio. 

But another recent acquisition promises to have a more immediate impact. In August, Orosur sealed an option deal over the Talca mine.

The deal allows Orosur to buy the mine from a Chilean family –through a series of payments over the next eighteen months.

Talca has been operated by the Chilean family for the last forty years. In that time the family produced approximately 300,000 ounces of gold from an artisanal scale mining operation.

“The idea is that we’re going to define a 43-101 resource by mid-2012. The drilling campaign started three weeks ago. Two rigs are currently on site, one diamond and one RC, and a third rig will join the campaign shortly.

“The geology is very interesting. It is a high grade vein system. Two of them are visible. You can actually see them on Google earth.”

He added: "If you work back from the 300,000 ounces the family has produced and you consider the tailings on site (about 1 million tonnes at 1 gram per tonne), you can estimate a historic average head grade of about 13 grams per tonne."

Orosur is targeting the mineralisation below 150 metres, which was the deepest the artisanal operation could reach. It is also exploring along strike.

Talca is believed to be a system of a high grade vein, spanning up to 4 kilometres. Tondo reckons the family mine has only touched upon a third of that area. And depending on upcoming exploration results Talca could surpass Pantantillo to become the group’s priority mine development.

“There is plenty of opportunity there to quickly define some resources.

“Initially we are targeting at least 500,000 ounces of gold, but I think we could find much more than that. If we find decent grades, as we are expecting, then we could fast track the development very quickly. 

“If we get exploration results confirming what we are thinking then we will be prioritising Talca, even over Pantantillo.

He added: “The site has already been permitted for gold mining. The idea is that we benefit from the permitting that’s in place. We would have to adapt the permit because of the larger scale of the mine that we would be developing.

“We would be fast-tracking that project.”

On this basis production could be established at Talca by 2014, and Pantantillo could be operational by 2016.

With the help of Arenal Deeps the Uruguayan gold production could be generating cash flows in the order of $40 – $50 million each year. Orosur intends to reinvest this substantial yearly cash-pot into the Chilean project.

This means that Orosur won’t have to come back to investors for capital, instead it can support its own ambitious growth aspirations. 

“A project like Talca could be fully funded by the company.

“We won’t be raising any more money from investors unless there was anything new that we wanted to do with the portfolio. We have a very good cash position. It lets us do many interesting things."