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Orosur Mining - a gold winner so far for me and set to glisten

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Orosur Mining (LSE:OMI) is an AIM and Canada listed gold producer, shares in which I initially recommended as a share tip at 24.25p in May 2010 on t1ps.com – the website I founded in 2000 but departed from in September – and subsequently updated on here last month. On Friday the company released a production update which I review in the following against a backdrop of a 37.75p share price

You can read last months detailed analysis HERE

The announcement states that “production for the second quarter ended 30 November 2012 was 13,970 ounces and the company remains on track to achieve its forecast production target of 63,000 to 68,000 ounces for the full year”. This is from the San Gregorio mine, the only producing gold mine in Uruguay, and where the company continues to develop a ramp to access higher grade ore at the ‘Arenal Deeps’ deposit. On this, it today updated that the development of the ramp is on track for completion during the current quarter – with 352 metres completed during the second quarter, leaving 180 metres remaining to be completed (out of a total of 1,990 metres). The company should thus be able to access the higher grade ore in the final quarter of its current financial year (ending 31st May 2013).

For alerts on all articles by Tom Winnifrith follow him on twitter @tomwinnifrith

The update follows first quarter production of 15,451 ounces, at a cash operating cost of $1,094 per ounce, which saw a post-tax profit of $2.29 million recorded. However, exploration and development spending helped see the net cash position fall by $5 million during that quarter, with ending cash of $7.19 million comparing to debt of $6.95 million, current assets exceeding total liabilities by $461,000 and a new working capital line of up to $4 million agreed with the Uruguayan branch of Scotia Bank at the end of the quarter.

However, post the end of the current year the company has stated that it expects to “generate significant operating cash with lower levels of capital expenditure during the three years to 31 May 2016” and that that it will seek to “maximise our free cash flow” in this period by targeting San Gregorio production at between 60,000 to 70,000 ounces per annum at an average cash cost of $810 per ounce.

Even at a $1,500 gold price (currently c$1,700), an annual 65,000 ounces costing $810 per ounce would throw off $44.85 million of cash – the current 37.75p share price capitalises this company at £29.5 million ($47.3 million). As per my update last month there are clear challenges and risks here and these, together with a mixed recent track record, mean Orosur shares remain somewhat speculative at this juncture. However, if the company is able to deliver from here I continue to believe a share price of 100p+ easily realistic on a cash flow multiple basis and thus, at current levels, I continue to rate the shares a speculative buy for the adventurous investor.

Tom Winnifrith’s first e-book, Letters from the Chestnut Tree cafe is out on Monday. To order your copy for just £4.25 direct from publisher Harriman House click here

To receive a bi-weekly newsletter from Tom Winnifrith including a free share tip in the midweek issue click HERE

 

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