RE:RE:RE:RE:RE:RE:RE:Down we go againauburn2,
I thought that I would check in with you to see how your investment in Alio Gold or Timmins Gold as it used to be named is going. Alio Gold is on my watch list because it was the 8th most profitable junior gold miner in Q3 2017 of the companies that have reported to date. Alio Gold also has the distinction of being the second most efficient gold miner in terms of ounces of gold mined to produce a penny in after tax profit. The number one stock on this metric is Caledonia Mining, and the #3 stock is Aura Minerals.
So with those positive metrics, I am puzzled as to why the stock is going down?
Perhaps country political risk in Mexico is rising what with the Mexican government being late on their VAT refund payments, and all the mining companies have mentioned this. GPL is having problems with getting their TSF permits approved on a timely basis, and the Mexican air quality agency did an inspection of Santa Cruz Silver's Vetagrande mine getting shut down by Mexican authorities in November for air permit violations. And then there is the TGX situation which is a real snafu, and not to mention Primero's problems at San Dimas. Add it all together and you have a country where the perceived political risk by investors is low but the risk on the ground seems to be high or at least increasing.
Then you have the opposite situation of a Zimbabwe where perceived political risk has always been high, and then you get Mugabe doing an exit stage left, and CMCL goes through the roof.
But, country risk aside, the reason for my post is to compare and contrast Orvana Minerals El Valle mine in Spain with Alio's Ana Paula mine in Mexico. Both mines are alike in that they feature open pits in the upper reaches of the deposit with complex skarns and high grade breccia mineralization.
The difference is that the El Valle open pit yielded production of 950,000 ounces of gold and 20,000 tons of copper from 1997 to 2006 when it was mined by Rio Narcea Gold Mines. Rio Narcea built a 2000tpd Metals Recovery plant complete with copper flotation circuits, gravity gold circuit, mill, and CIL plant for gold recovery and a gold refinery for producing gold dore. Orvana Minerals bought the El Valle mine complete with MRP in 2009 for $48 million dollars, and then invested $50 million dollars to bring the underground skarn areas into production. To date the high grade Breccia has not been mined. However, Orvana added a shaft down to 400 meters for ore hoisting. El Valle has been in commercial production since the fall of 2011 and has generated enough cash to pay off Orvana's $50 million dollar loan. For underground access, Orvana has the shaft plus a system of ramps to access skarn and oxide areas underground.
The Ana Paula project is a greenfields project where an investment of $130 million dollars will be required to build the mine. Management purchased a 6000tpd used plant from Goldcorp, but that plant is missing a gravity circuit, a flotation circuit, and a mill. Alio Gold will get to profit from the open pit and from the underground at Ana Paula, and management decided to spend $10 million dollars in cash on a1200 meter exploration decline to reach the area underneath the proposed open pit. The belief is that high grade ore from underground will be able to supplement ore coming from the open pit to maximize cash flow from Ana Paula. Based on the following drilling results from 2017, it seems that Alio management is making the correct decision to explore underneath the open pit from the start:
- Drill hole 17-04 intersected 99.4m (from 51.9m to 151.3m2) of 10.8 g/t gold
- Drill hole 17-05 intersected 74.0m (from 96.0m to 170.0m) of 6.2 g/t gold
So El Valle is like Ana Paula after the open pit has been mined out, and production comes from skarn and high grade breccia areas. If you take a look at Orvana's latest drilling results from the high grade breccia:
- Drill hole 16EBX1017 intersected 64.27 g/t gold, 5.65 g/t silver, and 0.23 percent copper over 4.9 meters at a depth of 28 meters below the surface in high grade breccia
- Drill hole 16V1483 intersected 9.6 meters of 8.29 g/t gold, 52.84 g/t silver, and 1.92 percent copper in the BSO skarn area
- Drill hole 12CNW1062 intersected 10.2 meters of 12.54 g/t gold 4.74 g/t silver, and 0.15 percent copper
In terms of the ore grades underground, Orvana's El Valle mine is quite similar to Ana Paula, the other main difference being that El Valle ore in Spain is gold with copper and silver by product, while the ore at Ana Paula is refractory gold in arsenopyrite. Here's the link to Orvana's detailed drill results.
EVBC Exploration Results Anglo Pacific News on Orvana Drill Results What puzzles me most of all is why investors like yourself would pay over $3 USD per share for a stock that wants to be a two mine gold producer 3 years from now and needs to borrow $130 million to get there, but think that a two mine gold producer with an Ana Paula in production and no long term debt, producing 125k ounces gold equivalent annually and priced at 15 cents per share is not worthy of investment?
If you could buy ALO today for 30 cents a share, would you do so? Of course, you would!
I feel the same way about ORVMF as you do about ALO.