RE:RE:RE:RE:RE:RE:RE:Earnings outGanndolph,
first of all I’m talking about Orvana as a whole when I’m stating that ORV is a high AISC producer. This is due to only one producing mine at this point. You are focusing on the AISC for Orovalle specifically. From your perspective the AISC will be much lower of course, I’m more interested in the whole picture and from that angle Orvana at this point is a high AISC producer as company G&A expenses and exploration hurts AISC significantly when there are few ounces mined per month.
Second, I don’t follow your focus on metal sold when discussing AISC. This metric should follow metal produced not metal sold. Price of gold shall have no impact on the AISC. So I get a bit confused. Metal sold will turn out on the income statement with lower net sales for the quarter due to stockpiling and stockpiles will end up on the BS. You can’t just add unsold stock to sold ounces and divide presented AISC with this higher amount just because the company increased its stockpiles in the quarter. Even though AISC is not a standardized metric guided by strict accounting principles it should reflect the cost of produced goods not sold goods. There is no statement of how the AISC is exactly calculated for Orvana, but if done properly the full production level should be reflected in the metric or at least the COGS of the stockpiled ounces will be included and then AISC would only be hurt by general G&A and exploration expenses as well as mark up for higher sales prices for the by product metals. So there may be a potential in true AISC being lower, but not that far as you take it, and it is difficult to know as we don’t have information on how the company calculates this. To exemplify, if you would calculate AISC only on goods sold in a quarter and you would stockpile everything, you would end up in an infinite AISC, which is of course not relevant or realistic and AISC would fluctuate extremely between quarters making this metric totally meaningless.
Anyway, in the end we both get to the same conclusion that Orvana is extremely undervalued. I may not reach to your levels of potential valuation of USD 16.40 per share at this point, in even my most positive scenario, however your conservative case gets close to my assessment of potential target given that metal prices remain at these or higher levels and that the company manage to add resource and maintain production at Orovalle as well as getting the OSP in production within one and a half year or so.
Again, many investors on this forum seems to be long time investors in the company that have gotten burned as the company hasn’t managed to turn to a profit since the last PM bull market that ended in 2012. And now when a new bull market has started, that the share price has not managed to follow many of the other miners. However, I see it differently that the company actually managed to survive this tough period without any dilution!
I think the SP has been hurt short term due to the unfortunate timing of closing down the EMIPA production which lowered the total metal mined increasing the AISC substantially and leading to not managing to show a nice profit when metal prices quickly increased and this coupled with hedges that has lowered revenues. This has probably led to a lot of the old shareholders dropping out and new ones, not making a proper DD, hesitating to invest. I believe that this will however change now. Especially when financials from 4Q 2020 will be presented where the hedges will have been removed and the company should be able to show a great profit even given they will not manage to increase production from the current 12 k/q level. This would start to attract a lot of new investors that will realize the potential. Only maintaining everything at Q3 levels and getting rid of the hedge should at minimum give a double of the SP.
There is of course a great upside to this if they could get more oxides in production, increasing monthly production rates, which would have tremendous impact on both AISC and profitability. I believe you have a better understanding of the mining part and the possibility that the company will get the grades up and increase production short term, so I hope your projections will turn out to be correct. This could then get us over the USD 1 level and if they manage at the same time to move the OSP towards production more or less according to plan, which seems now to be finally progressing, we will move towards the 10 bagger potential that I currently see in the cards. Should the metal bull market continue, who knows where we could end up in a year or two.