New Orperu Resources Inc NOPUF

Hydra Blog

[Chreca1]

And then there’s New OroPeru (ORO.V, last at $2.39). The stock has performed well as some early-mover gold market participants recognized the potential in this lightly followed name, but I think it’s still cheap and it has a very tight capital structure with only 26 million shares out. ORO owns 100% of the Tres Cruces deposit in Peru, roughly 10 kilometres from Barrick’s idle Lagunas Norte operation. Tres Cruces is a 3.2 million ounce gold resource that remains open to expansion laterally and at depth, where the deposit has only been drilled to a depth of around 300-350 metres at most. Many holes bottomed in high grade mineralization at depth and observations from core suggest the potential for undrilled high-grade feeder zones at depth. Tres Cruces has an oxide cap that should be broken out from the global resource estimate for the first time in the not-too-distant future in an updated resource estimate. The oxide cap represents an early, low-capex, high-margin starter operation. For perspective, the oxide ounces could have margins in the US$1000/oz range at US$1600 gold, so I believe their potential value is significant. The fact that Lagunas Norte is out of oxide ore and just 10 kilometres away means that not a lot of imagination is required in terms of seeing how this might play out. At its current share price, ORO trades with a ~US$45 million market cap, which is only US$14/oz on the 3.2 million ounce total resource. I look at a lot of comp tables and projects, and ORO would plot amongst the cheapest of all of them on an EV/oz basis, and most of the comps aren't 10 km from an idle mining operation that needs ore. Recall that Barrick has an option to acquire 70% of the Tres Cruces deposit by funding it through to production, after which ORO would own a 30% (carried) interest and a 2% NSR over the whole deposit. Pan American Silver owns 18.6% of ORO on a partially diluted basis and holds a 1.5% NSR on the project. The stock is illiquid, which keeps fast-money types away, but I’ve run this project by a lot of serious mining sector participants and feedback is consistently positive, so I’m very happy to watch this play out. Given that Barrick has until just December 31st of this year to make a decision, and with gold at $2000/oz, the timing for ORO couldn’t be better. If my downside case is that Barrick walks and lets ORO keep 100% of the deposit, I’m quite okay with that. The Tres Cruces 43-101 suggests that shipping a pyrite (gold) concentrate might be an option for the sulphide ounces given the project’s relative proximity to tidewater. If ORO is able to keep Tres Cruces on a 100% basis, I think there’s a very strong case for a standalone oxide heap leach project (think of something like STGO, or MAI) that piles up free cash flow during the years that sulphide development is being planned. That oxides-followed-by-sulphides is a standard play in the Mining 101 playbook and the geology of Tres Cruces appears to be very well-suited to it.

[JMark80]

Barrick can earn 70%, so current $80mm cap fully diluted for 30% of 2.6mm oz. Meh.

[JMark80]

Still in VLE? Ha!