Orinoco Gold's (ASX:OGX) share price momentum in recent months has outpaced the tide of stronger sentiment for gold, reflecting a growing market consensus that an imminent production start-up at the Cascavel mine in Brazil may add further value to the stock.
Shares in the Perth-based developer have tripled in value since the beginning of the calendar year to a current range around A$0.18.
An 80% surge for the stock just since the end of August has coincided to some extent with firmer gold pricing (last trading at about US$1,110 per ounce) but is perhaps more indicative of a quietly steady build-up toward productive mining in the first quarter of 2016, on time and on budget.
All Cascavel development activities are on schedule, both in Brazil and in Australia.
Factory commissioning of the gravity circuit in Australia complete, and all components of the process plant having now been fabricated.
Australian-supplied equipment is ready for shipping in final week of October and Brazilian-supplied equipment (including conveyors, ore feed bins and cone crusher) is on track for scheduled transport to site in early November.
Orinoco has organised for the equipment to clear customs at a dry port in the state of Goias where Cascavel is located.
Installation of the crushing circuit will begin in late November followed by installation of the gravity circuit, which is expected to commence immediately following its arrival in-country – scheduled for late December.
Civil works, including earthworks and foundations for the plant are progressing according to plan for crushing circuit installation in November.
Flagship in formation
Cascavel is part of Orinoco’s Faina Goldfields project in a rich but under-explored part of Goias that has yielded numerous multi-million ounce deposits such as Anglo Gold Ashanti’s (ASX:AGG) world-class +5-million-ounce Serra Grande mine and Yamana Gold’s (TSE:YRI) +6-million-ounce Chapada mine.
Faina Goldfields has all the hallmarks of an emerging mining centre, potentially with multiple production centres. Orinoco’s objective is to fast-track early cashflow from Cascavel through an initial small-scale, low-cost mine development, with the cashflow then used to expand the operation by unlocking multi-million ounce potential within Orinoco’s tenement holding.
This property holding includes 70% of the high-grade Faina Goldfields exploration project and 100% of the former Sertao gold mine, also in Goias.
Recent progress at Cascavel has included the placement of environmental licences and underground mine development, with visible gold encountered in all development fronts of the mine.
With the initiation of the first-level drives from the main incline shaft, regular panel sampling of the mineralised vein is now underway. The first expected assays from the mine development will be from a small bulk sample collected from the mineralised zone in the main incline shaft.
Results from the sample are expected in the coming weeks followed by regular panel sample results which will provide an indication of the grade of the ore that will be extracted from the initial stopes.
Ground conditions in the northern part of the mine (in which the exploration decline began in 2014) are good.
Boreholes sunk recently into historical workings and the subsequent start of pumping has enabled de-watering to begin in the area around the mine development, resulting in an immediate improvement in ground conditions.
Four headings are currently underway, and a fifth is expected to commence next week.
The mine development is being financed through an innovative funding package, the major component of which is a US$8 million gold streaming arrangement with Chancery Asset Management.
Key jurisdiction
The Goias Velho region was the first area to be found and mined by Portuguese settlers by 1680. It had an estimated production of 3 million ounces of gold during the colonial period, which made the city of Goias.
Faina city (7,000 habitants) is located 11 kilometres from Cascavel and 25 kilometres from Sertao. The city of Goias (20,000 habitants) is located 70 km from Cascavel and 45 kilometres from Sertao.
Orinoco has planned to leverage off existing infrastructure in the region, with the purchase last year of Sertao from Troy Resources (ASX:TRY) expected to be a second, synergising development behind Cascavel.
Ore will be mined at Cascavel and processed at a plant being built at the moment at Sertao.
This scenario will allow for the company to fully benefit from existing roads and the skilled labour force that Troy earlier used to mine Sertao.
The major cities close to the Orinoco mines are the state capital Goiania, located 170 kilometres with 2,000,000 habitants, and the national capital of Brasília, 350 kilometres away with 2,900,000 habitants.
All roads connecting these cities are good sealed roads with either single or dual lines.
Stronger leadership
Earlier this year, Orinoco also has strengthened its board and management with the appointment of experienced mining executive Jonathan Challis as a non-executive director and former Kingsrose Mining (ASX:KRM) senior executive Tim Spencer as its chief financial officer.
Challis has over 30 years’ experience in the operation, management, financing and analysis of mining projects around the world.
His appointment further strengthens the board in the key areas of technical, operational and mining expertise, with his experience expected to be invaluable as Orinoco makes the transition to gold producer.
He has been involved in several Canadian resources companies in the roles of chief executive officer, president and director.
Challis is currently a director and chairman of Rye Patch Gold Corp, as well as a director of WAI Capital Investments Corp, Quartet Mining Ltd, Goldfield Empires Ltd, Explor Resources Inc. and Pasinex Resources Ltd.
Spencer has over 20 years’ experience in precious metals markets, working in various accounting, treasury and finance roles including with three gold mining companies and a large gold refining and trading enterprise.
These appointments add to the already considerable resources, financial services and Brazilian exploration experience offered by managing director Mark Papendieck.
Papendieck has spent the last seven years focusing predominately on Brazilian resource projects and was the founding chairman of Brazil-focused Centaurus Resources (ASX:CTM) from 2006.
Analysis
Steady development of Cascavel is testament to Orinoco’s project delivery capacity and bodes well for the efficiency of future operations at the site.
Share price performance for Orinoco has demonstrated a growing investor awareness of the value inherent in Cascavel, which is rapidly achieving concrete milestones toward production early next year.
The proximal Sertao project adds scope for considerable expansion to the company’s portfolio in a major gold mining jurisdiction.
More locally, expansion and growth potential has been demonstrated by enticing hits of visible gold in all development fronts of Cascavel, suggesting the project may be comparable to some of the multi-million-ounce operations in the broader region.
The initial mining plan encompasses only a small part of the project area.
Metallurgical testing has indicated that mineralisation at Cascavel is mostly ‘free gold’, which should result in excellent gravity recoveries that will lead to a lower operating cost.
Cascavel hosts high-grade, structurally-controlled coarse gold shoots, where underground sampling has returned bonanza grades including 15 metres grading 88 grams of gold per tonne.
Add in the share price driver of multi-million ounce exploration potential from Orinoco's tenement ground holdings and even the current market cap of circa $35M looks undemanding.
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