Orosur Mining Cheap Cash-Flow And A Free Call Option On Gold Ben Kramer-Miller
Gold & precious metals, macro, research analyst, deep value Summary
Orosur Mining is down 95% from its 2006 peak.
The company has suffered from high production costs at its San Gregorio mine and perceived geopolitical risk operating in Uruguay.
Production costs are coming down and the geopolitical risk is not so large.
Even using a conservative 14% discount rate the San Gregorio mine is worth more than the company's entire market cap.
Furthermore investors get a free call option on gold--the Pentanillo project--which could send the stock soaring if the gold price rises.
(*Note that Orosur Mining shares are extremely illiquid in the United States. Investors can find more liquidity on the Toronto Stock Exchange (TSE: OMI.)
Orosur Mining is an intriguing company that has incredible upside potential in a rising gold price environment and limited downside risk should the gold price fall back to its double bottom level of about $1,200/ounce.
The company owns one producing mine--San Gregorio in Uruguay--which is going to generate a large amount of cash-flow relative to Orosur's market cap. While it has a limited life based on its reserves this life can potentially be extended, in which case the mine is worth considerably more.
Orosur also owns the Pantanillo project in Chile, which given its range of valuations at various gold prices, is similar to a call option on the price of gold