RE:RE:RE:RE:RE:Hedging -= shot themselves in the footFirecracker74,
In your post, you asked the correct question which is:
"The big question is whether it is better to buy something that is benefitting now. The hedging has delayed any meaningful profits until next year even if gold goes well above $2,000. Make me a believer."
To answer your question, in Canada Orvana stock (ORV.TO) has gone from 17 cents to 25 cents in 2 months, a gain of 47 percent and the monthly trading volume was 3.1 million shares. In the USA, ORVMF has gone from 12 to 18 cents, a 50 percent gain in two months, and the July monthly trading volume was 1.39 million shares. So Orvana is participating in this sector move in the gold and silver stocks, and your idea that Orvana is not benefitting is just plain wrong!
Now let's go to the big picture. Tom O'Brien at TFNN.com says gold is doing an ABC up to $2700 USD/oz within the next 2-3 months. POG has already broken out above the 2011 highs so it is reasonable to assume that all gold producers will at least get to their 2011 highs as a minimum price objective. ORV.TO has a high volume 2010 swing high at $3.97 USD or 27.5 times the current stock price, which means, if Tom is right about the ABC up, Orvana Minerals will be a 27 bagger!
So, the real question that you have to ask yourself is if you don't take a position in Orvana now at its current super cheap stock price, what makes you think that the market will let you in at the same price a month from now, given that the average junior gold producer has done a double in price over the last 2 months?
Reasons to Buy--
- Super cheap market valuation relative to gold production;
- Orvana is a silver producer and copper producer along with gold production, so the stock has significant leverage to an increasing silver and copper price;
- The metals in Orvana's oxide stockpile and tailings dam are worth $1 billion USD at current metals prices and will add 7-8 years in mine life to production at Don Mario and that production starts in 2021;
- Operational performance and successful response to the COVID pandemic in Spain.
Let me start with the last item first, because of Covid 19 related lockdowns in Spain, Mexico, and many other countries, why is it that Orvana Minerals had no drop off in gold equivalent production quarter to quarter from fiscal Q2 to fiscal Q3?
From page 2 of the Orvana FQ1 2020 MD&A:
"Throughput reduction due to strong rains in November and December causing hauling and blending issues. November rains were three hundred percent above the usual average rains for the month. Based on the heavy rain forecast for December, it was decided for the month to reduce throughput and anticipate mill maintenance activities scheduled for the second quarter, reducing the milling throughput
. Ore mined not treated was stored, creating a twenty thousand tonnes stockpile at the mill entrance, which is being treated in the second quarter."
From page 6 of the Orvana FQ2 2020 MD&A:
"The ratio of oxides ore processed in the mill was at the level of 37% in the second quarter of fiscal 2020, a decrease of 14% compared to the first quarter of fiscal 2020. The second quarter blend was affected by the treatment of the skarn stockpile accumulated at the end of the first quarter. There was no Carls ore processed at the mill in the second quarter of fiscal 2020, compared to 6% of the total tonnes in the first quarter of fiscal 2020."
So the decrease in gold ore grade from FQ1 to FQ2 was due to the extra 20,767 metric tons of skarn ore treated during FQ2. This reduced the oxide ore fraction from 51 percent of throughput to 37 percent of throughput. The mill processed 148,339 metric tons of ore less 20,767 metric tons stockpile = 127,572 metric tons of ore mined during FQ2 was processed during the quarter.
However, 142,498 metric tons were mined during FQ2, so therefore 14,926 metric tons of ore mined in FQ2 that was not processed during the quarter.
My speculation is that a portion of this stockpiled ore was processed during lockdown period in FQ3, and that this was the reason for the drop in average ore grade relative to FQ2.
Additionally a 10-15 day suspension of mining implies that the quantity of ore mining could be up to 30,000 metric tons less than the amount processed. If so, the total mining cost would have dropped from $16.8 million USD to $14.9 million USD.
On metals prices received by Orovalle, in FQ2 2020, silver revenue was $548,000 USD divided by an estimated 36,650 oz produced yields a realized price of $14.95 per ounce. Copper revenue was $3,245,000 USD divided by sales of 1,413,000 pounds result in a price of $2.29 per pound. Subtracting that by product revenue from top line revenue of $20,658,000 USD leaves $16,865,000USD. Divide by gold sales of 12,216 oz, the actual gold price received was $1380 per ounce.
For fiscal Q3 2020, my projected Orvana revenue estimate is $22.7 million dollars assuming gold at $1600 USD/oz, silver at $17 USD average for the quarter, and copper at $2.80 USD per pound. Lower mining cost this quarter, plus higher by product metal sales results in a small profit of $1.4 million USD or a penny per share.
Assuming a return to 50 percent oxide ore in fiscal Q4 increases gold production to 16,000 ounces, and flying silver and copper prices $30 USD per ounce of silver and $3.20 USD/lb on copper increases profit to 3 cents per share.
If Tom OBrien is right on his call for $2700 USD gold, IMHO silver goes to at least $50 USD, and copper to $4.50 USD/lb. Combine that with Orovalle processing 65 percent high grade oxide ore, and guess what?
Quarterly profit goes to $35 million USD/quarter, and EPS is 25 cents per share. Annualized profit goes to $1.00 USD per share resulting in a stock price of $10 USD on a PE of 10.
All that from Orovalle alone!
ganndolph