RE:Seeking Alpha article today on ORVall,
The Seeking Alpha article contends that Don Mario is scraping the bottom of the barrel as far as ore sources, and doesn't have enough ore to feed the mill at Don Mario.
The author states the following:
"Don Mario has been posting highly promising data, driven by the re-commissioned CIL circuit at this mine. The June quarter was the first full quarter of ore production from this circuit and operational data looked very positive as evidenced by AISC well below the $1,000/oz mark. The main issue here is finding sufficient ore to feed into the mill. The original ore sources of the Lower and Upper Mineralized Zones have been more or less depleted and Orvana is well and truly scraping the bottom of this barrel, already supplementing with oxide flotation tailings from pre-CIL-circuit times."
"The company is planning to bring the Cerro Felix deposit online, which is located about 500m from the existing pit.
Unfortunately only very limited technical data has been released regarding this deposit. The MD&A mentions a mine plan, but without providing any further details, let alone reserves. Indicated plus inferred mineral resources as published for September 2016 would support just over one year's worth of production from Cerro Felix at present rates -- but only in the un-likely case that all of those resources can be converted into reserves."
Cerro Felix is scheduled to go into production fiscal Q3 2018, and 570,000 metric tons of ore feeds the plant for 285 days at 2,000 tpd. So the question is:
1) What is Don Mario's track record at converting resources into reserves? The Las Tojas project is a similar satellite deposit that was supposed to provide 3 quarters of ore to blend in with the LMZ ore in 2009.
2) What are the economics of these satellite ore bodies?
The following graphic summarizes the 43-101 measured, indicated, and inferred resource at Las Tojas, and actual production records from 2009 to 2011 show the total gold production from this small deposit. The in situ resource was only 31,842 ounces, but actual historical production from this small surface deposit with a 750 meter strike produced 47,625 ounces of gold which was recover. So there was 80 percent more gold there than indicated by the 43-101 report, and the deposit which was supposed to last for 3 calendar quarters contributed to Orvana's gold production for 2 1/2 years.
The Las Tojas deposit is open to the south, and Don Mario geologists will be drilling new holes at Las Tojas this year. The Las Tojas schist belt is 40 kilometers long, and the continuity of the gold bearing zone at Las Tojas is very good. So therefore, it follows that Don Mario geologists will find more deposits of a similar size along this belt.
To answer the second question on the economics, I looked at 2010 production data for the year, and the total cost per ounce of gold including depreciation was $903 USD. Las Tojas contributed $157 USD per ounce of profit to the bottom line in 2010 during a year in which the average gold price was quite similar to the current gold price. I back calculated the average open pit strip ratio to 8.8 based on the actual cost data. For my current modeling, I am assuming a strip ratio of 10 for Las Tojas and 6 for Cerro Felix.
