RE:OrvanaThebills,
You are asking the wrong question. The real question is how is it possible for El Valle to report decreasing quarterly gold sales, when they just had a 36 percent increase in plant throughput from 1324 tpd to 1801 tpd from Q4 2016 to fiscal Q1 2017?
The answer is that gold production actually went up from 9209 oz in the prior quarter to 10,723 oz in Q1 2017. But they only sold 8828 oz of gold during the quarter, which was just enough for El Valle to remain break even in cash flow.
It makes sense that management would keep almost 2000 oz of gold off the market waiting for better gold prices in Q2 2017. So the net effect was that the quarterly report for fiscal Q1 2017 was more negative than it could have been.
However, there is an even bigger question here. What is the probability that a 36 percent increase in tonnes of ore milled would result from 1324 tpd to 1801 tpd would be accompanied by an 11 percent drop in the quarter on quarter gold grade to the lowest gold grade in the past 16 months? How do you pull that off without it being deliberate? Or without having your ore grade control program disintegrate?
So that leaves two rational explanations.
- Orvana is processing development ore to increase throughput without regard to grade control to get to high grade ore areas in the second half of 2017, or
- Greater than expected ore dilution is being encountered within the current areas being mined.
All of the above raise the suspicion in my mind that Orvana's management may be operating under a dual mandate to fix the problems at both Don Mario and El Valle, while simultaneously keeping the stock price low enough to enable an acquiring company to pay a healthy premium to the current stock price to get the transaction done. This is pure conjecture on my part.
However, guess what? If Jim Gilbert quits his day job, he gets $423,679 USD. However, if another company acquires Orvana and there is change of control, he gets $847,358 USD--a very nice golden parachute indeed! And Jeffy Hillis, the CFO gets $491,500 USD if he quits his day job, but in event of a CHANGE OF CONTROL, he gets $847,218 USD--another great golden parachute!
Given the management incentives in place, astute investors will realize that there is the distinct possibility that there is a larger game at play here.
I will cite one previous example:
The following quote is from the Q2 2016 MD&A. We now know that Samsung consultants were doing their due diligence on Orvana at the exact time this bearish statement was put out by Orvana management.
"Outlook and Going Concern The Company continues to pursue a number of initiatives at El Valle and Don Mario in order to meet its objectives of optimizing production, lowering unitary cash costs, maximizing free cash flow, extending the life-of-mine of its operations and growing its operations to deliver shareholder value. It will also be pursuing strategic alternatives such as mergers or acquisitions. The Company is currently monitoring its liquidity position closely and continues to assess its capital needs for the remainder of the fiscal year and beyond. The liquidity outlook of the Company has changed in large part due to the recent commitment to satisfy an additional €5.0 million environmental reclamation bond in Spain. El Valle continues to focus on de-bottlenecking the mine through investments in power and water pumping infrastructure in order to meet lagging mine development requirements and increase productivity rates. The Company requires investment of additional capital to address these operational issues and, until these issues are rectified, the Company’s forecasts indicate that El Valle Mine will incur continuing losses and cash outflows from operations. At Don Mario, the Company is planning to execute the CIL Project, subject to closing the external financing noted above. The CIL Project together with the existing flotation plant best positions Don Mario for the future and is expected to result in the operation maximizing the value of the recently defined resource material, generating free cash flow through fiscal 2017. Furthermore, the CIL Project could provide enhanced processing capabilities to leverage other known opportunities in the future. The Company believes that it will require external financing through debt, equity or other sources to support its activities over the next eighteen months, excluding financing for the CIL Project expected to close in May 2016. Although the Company has been successful in raising equity and debt financing to support its activities in the past, there can be no assurance as to the success of its future external financing efforts or as to the timing and sufficiency of financing that may be obtained. These circumstances may cast significant doubt as to the Company’s ability to continue as a going concern, and the ultimate appropriateness of the use of accounting principles applicable to a going concern."
The Q2 2016 report resulted in 6 million shares of Orvana being sold by hapless investors who didn't know that the Samsung due diligence on Samsung's off take agreements was happening at the exact time when management was putting out their "going concern" statements.