Nice Write up from James WinstonFrom www.jameswinston.com
New Pick
Oriel Resources (ORL, TSX) New Pick www.orielresources.com Oriel Resources has just
started trading on the big board at the Toronto Stock Exchange. Though it’s new to North
American investors, Oriel has been traded on the AIM exchange in London since March of
last year. In other words, they have had institutional coverage and buying but virtually no
exposure from the retail market. That is about to change.
Yesterday Oriel closed on AIM at 45.5 pence or $1.08 CDN which is near its 52 week low
of 44 p and well off its high of 88 p.
Over the next 12 months new investor awareness and fundamental advancements on the
properties could produce a price target of 95p or about $2.25.
The mastermind behind Oriel is Dr. Sergey Kurzin formerly hailing from Russia but has
been residing in London for the past 15 years. Because of his background as a PhD in
nuclear physics and engineer working in the old Soviet bloc countries, he is very well
acquainted with that part of the world not only as a mine finder but someone who can
easily network with the local governments, business and labor leaders.
Kurzin has had key roles in acquiring and developing mining assets including Bema
Gold’s Julietta high grade gold deposit in Magadan Kupol and their high grade gold
deposit in Chukotka. He also was instrumental in helping to discover the Varvarinskoye
property currently being advanced into production by one of our other picks, European
Minerals.
As with many of our other smaller cap resource picks, Oriel has a couple of high potential
properties which were in need of capital and technical expertise to take them from simply
deposits to actual mines which will produce cash flow in a reasonably short time frame.
So without further adieu, let’s review what they own.
An Emerging Stainless Steel Supplier of Nickel and Chromite
Overview
Oriel’s two key properties are in an area of Kazakhstan which is a hot bed for resource
mining activity. All the infrastructure components are in place – power, transportation,
and local skilled mining labor. Oriel Resources is positioned to supply the stainless steel
market in Asia and Europe for the next 25 years, as it puts one nickel and one chromite
mine into production. Initial studies on both deposits indicate they will provide quick
payback and strong cash flow.
Earlier this month, Oriel finalized the acquisition of the 100% owned Voskhod chromite
deposit. This is a high grade – 18.7 Mt deposit is graded at 46.2% Cr2O3. This Voskhod
deposit can be in production by early 2007 with a capital cost of less than US$40 million.
Preliminary estimates show that Voskhod could become one of the world’s lowest cost
producers.
Using conservative and realistic numbers, in the first year of production, the company
could generate US$80/tonne and provide gross cash flow of US$60 million. Chromite
currently trades for approximately US$150/tonne. The largest chromite mine in the world
is 3 km north of Voskhod, and Kazakhstan is the second largest supplier of chromite
worldwide.
Chrome 101
Chromite is the raw material for chromium, which is used to harden steel and make it
more resistant to corrosion. Stainless steel is 75% of the chrome market. There is no
known substitute for chrome. There are no metal exchanges that sell chrome or chromite;
sales are negotiated between buyer and seller but prices do follow the stainless steel
price.
The Shevchenko Nickel Deposit
Like other commodities, nickel demand is soaring. Oriel’s Shevchenko property is
projected to become one of the world’s lowest cost operations in just three years time.
This past September a pre-feasibility study was done which confirmed a pre-tax NPV of
the deposit at US $489 million, discounted at 10% with a nickel price of U.S. $4.50 per
pound. The study projected the nickel production to be 31,000 tons per annum at a low
cost of US $1.53/pound (the world’s lowest quartile) over a 15 year life based only on 58%
of the identified resource. Capital costs are estimated at US $346 million. By this May,
Oriel expects to have a completed Definitive Feasibility Study (DFS) on the property with
mine construction financing completed by the end of the year. Nickel production is
estimated to begin in 2008.
Guaranteed Sales
In November two major announcements were made concerning the Shevchenko project.
ThyssenKrupp, one of the leading stainless steel companies in the world, guaranteed to
buy the entire future ferronickel production from Shevchenko. Also Bateman, one of the
world’s largest engineering companies was selected to carry out the Definitive Feasibility
Study (DFS) and to arrange project financing.
Two excellent endorsements!
Also in November, a 450 ton bulk sample was sent to Mintek in South Africa to test the
smelting processes. The results should be announced shortly.
Gold Projects
Just for your information, Oriel also has interests in early stage gold properties which do
not warrant further discussion at this time.
Conclusion
Oriels’ two major assets have robust economics that will make them long term suppliers
to the steel industry. Both projects are located only 600 km apart by rail, creating
potential synergies and cost savings as they move into production.
Three of the four major global steel companies are actively talking with Oriel, because of
their advanced stage assets and proximity to growing markets.
Voskhod is a highly profitable chromite deposit, which will be in production in early 2007.
The Shevchenko nickel deposit could potentially start production in 2008. So what we
have here are two low cost mines with very good prospects for generating significant cash
flow.
I believe Oriel will provide a 50% return over the next 12 months given that they move
forward with their mining plans.
Oriel is a buy. Accumulate at $1.50 or less. www.jameswinston.com