The reversal of fortune in the junior mining sector as money once again begins to flow into the market has brought an army of juniors forth from hibernation to sound the horns. Amongst this crowd is an elite collection of companies that are focusing on building revenue without diluting shareholder equity. Orefinders Resources (TSX: V.ORX, Forum) is one such company with its flagship Mirado Project located in Ontario, Canada’s storied Kirkland Lake gold camp which to date has produced over 40.0 million ounces of gold.
With Mirado, Orefinders has found an innovative way to produce near-term revenue while they continue to develop the advanced-stage project approximately 13 kilometres south of the Larder Lake Cadillac Fault. Stockhouse writers sat with Stephen Stewart, M.Sc., MBA, and the CEO and Director of Orefinders Resources, to get a full picture of the company, its assets and its future potential.
Stephen, for those who may not have had the pleasure, how would you describe Orefinders Resources in a short elevator pitch?
We are an exploration and development company, first and foremost. We focus on gold and our properties are in Ontario. Our objective is to create wealth for shareholders through expansion of our existing resources and new discovery through the numerous targets on our properties. Recently, we've been getting a lot of attention because we have a unique opportunity to put our stockpile from our Mirado Mine back into production this year.
Orefinders Resources has a strong portfolio with two significant assets in Ontario; both in prolific gold camps. Derlak is in the Red Lake mining camp which has a past production of approximately 25.0 million gold ounces. The property is sandwiched between Pure Gold’s successful Madsen Project and Premier Gold’s Hasaga property which has been producing some phenomenal results. Then of course, there’s the company’s flagship Mirado Project. What was it about Mirado that made it the necessary top-flight property for Orefinders to tuck into its portfolio?
We acquired the Mirado Mine and Derlak properties back in 2012 and subsequently raised $6 million together with our IPO in early 2013. Keep in mind we did this when the market was at a very low point, yet the prospectivity of these two projects allowed us to raise the money at 50 cents. We eventually rose to a market cap of around $35 million shortly there after. These two properties really are excellent real estate. Derlak’s neighbours including Pure Gold Mining and Premier Gold, and with the excellent results that the Madsen PEA has delivered, along with the phenomenal drill intersections that Hasaga has come out with, we feel well positioned directly between these two properties. Our flagship the Mirado has three former producing minds on the property, the primary one being the Mirado Open Pit on what we call the South Zone which hosts our NI 43 101 resource and the Stockpile project. The South Zone also includes our MZ Zone, which is southwestern extension of the Mirado Open Pit, and has yet to been drilled. The MZ Zone has the same geology which we proved in our trenching program from 2014 which showed 49.5 metres at a weighted average of 1.8 grams gold per tonne throughout and right at surface which shows the consistency and continuity of the surface grade.
The North Zone is also a former producing mine, which has a deep shaft along with kilometres of drifts and workings which we have since digitized into a model. The North Zone geology is completely different from that of the South Zone Open Pit. It's a VMS style mineralization with gold overtones. The 13,000 metres that we have drilled since 2013, only put three holes through the North Zone with each hole hitting ore grades over ore widths. The North Zone has the potential to host a game changing discovery on it.
The third former mine on the Mirado is called Gold Hill. Like the North Zone, Gold Hill has a shaft, and we completed extensive geophysics on it last year to help delineate targets. Follow up groundwork found a number veins that came surface which lined up with the geophysics and the historical reports from the old mine. This just shows the level of prospectivity on the land package that we've assembled as a part of the Mirado project. Of course given an unlimited budget we would be out there in the field working all the time, although in this market, we need to be very thoughtful about how we spend our money.
As mentioned earlier, Orefinders Resources has found a way to build revenue at Mirado involving a new deal the company has recently announced involving well-known mid-tier miner, IAMGOLD (TSX: IMG, Forum). Would you give us the details on the deal and the opportunity it presents for the company and its shareholders?
You're right, we do expect to generate revenue from the Mirado project which will allow us to continue development work without having to burden our shareholders with too much dilution at the prices that the market currently sets.
As I said earlier, first and foremost we are an exploration and development company but we happen to have this unique situation whereby when the Mirado Mine shut down back in the late 1980s, the operators who were Golden Shield, left behind a large stock pile of rock that had been blasted from the open pit. We’ve done extensive testing on the stockpiles from both a grade and metallurgical perspective and we have a NI 43 101 resource on the stockpile grading 4.4 grams of gold per tonne. The metallurgy is also strong with over 92% recovery using a conventional grind and CIL flowsheet.
We just signed a deal with IAMGold to use their Westwood facility on a toll milling basis. Obviously to be working with a company like IAMGold is a milestone for Orefinders and we are thrilled to be working with their Westwood team who have been processing ore for decades.
From Orefinders standpoint, this is mostly a logistics operation. Firstly, we are crushing the rock down to an optimal size for transportation and acceptance at the mill. Then we are trucking it to the Westwood mill where they will process it. From mobilization of equipment on our property to being paid we anticipate that timeframe to take between 8 to 10 weeks. If we are successful in its implementation, we will have done two things. We will have cleaned up the mine site from an environmental perspective, and we will have generated revenue so that the company doesn't have to go back to investors to finance further exploration and development activities.
Investors would probably like to know how you will be utilizing all of this newfound revenue. How specifically will you be using the monies earned from the stockpile processing strategy?
Use of proceeds from the stockpile will be put towards words exploration and development.
The development aspect is what we call Phase Two on the Mirado Open Pit. Phase Two is the evaluation of an ongoing mining and toll milling scenario where we would blast and mine the same type of material which comprises the existing stockpiles. The Mirado Open Pit has had extensive drilling, and we understand it's mineralization and geology quite well. Internally we've identified higher grade shells within the larger envelope of the existing 43 101 resource which could deliver many years worth of feed to various mills in our neighborhood. If we can demonstrate a successful toll milling operation out of the stockpiles, and delineate a higher grade resource which is at surface that utilizes the existing pit and its infrastructure, we feel we will be well-positioned to put the Mirado pit back into production.
The exploration capital will go towards three areas.
Firstly will be drilling the MZ zone which is the southwestern extension of the Mirado Open Pit. We had high-grade intersections at surface in 2014 which have yet to been followed up with a diamond drill campaign. The MZ Zone has the potential to add significant ounces, grade and tons to our resource on the South Zone.
The second priority will be the exploration of the North Zone. As I noted before it's desperate for more drill holes. We put three holes in there in 2014 with excellent results. I believe the North Zone has the potential to be a game changer for our company. It just needs more attention and of course capital to develop.
The last bit of exploration will go towards follow-up program on our Derlak property. While our focus is clearly the Mirado, we will not be ignoring our Red Lake property given the excitement that’s been generated by our neighbors Pure Gold Mining, Premier Gold and Yamana Gold.
I should also note that we are fully permitted for all exploration work including drilling over the next two years.
Where is the company in terms of progress in its efforts to process the Mirado Stockpiles?
We have filed our Closure Plan on July 15 and expect to receive our final permit in relation to the Stockpile project within 45 days of its filing. This puts approval for the project to move forward around September 1. We would mobilize shortly there after to crush and haul the material which is expected to take 5 to 6 weeks. After it's delivered to the mill, we expect the mill to process the Stockpiles in one continuous batch over a two week period. After all the gold has been recovered and the doré has been poured, it is sent to refinery down in the US. This process takes between 1 to 2 weeks in order for the company to be paid proceeds from the recovered gold. Keep in mind, this final processing stage can occur in a matter of months but it’s been well over a years worth of planning to get to this stage.
So broadly speaking we expect to be starting the project towards the end of the summer and we hope to get paid a few months after that.
What other major milestones has Orefinders Resources reached in the last 12 months and is there anything else investors can expect for the remainder of 2016?
The last 12 months of been quite significant for Orefinders. Just over 12 months ago I took over as CEO of the company in order to do two things. To reduce the company’s overhead dramatically to ensure its survival and so that we would not have to dilute shareholders at such an awful time in the market. Secondly we had a clear plan to shift focus away from financing our operations from private placements, and towards financing our operations from cash flow generating opportunities that already existed within the company. Investors will note that since the IPO we've been extremely conservative in how we've financed the company in order to keep the share structure as tight as possible. Outside of the IPO, there are only two instances where we've done a private placement and in both of those instances they were to bring in strategic investors. Going forward investors can expect a management team whose focus is creating and preserving value from the assets we own and aggressive campaigns aimed at developing additional cash for generating opportunities, and new game changing exploration opportunities.
There is a combined industry experience of over a century when it comes to the executive management and board of Orefinders Resources. Who are the key players and what skills are they bringing to the table that will help drive the company toward its objectives?
Management is led by Alexander Stewart and myself. We complement each other well, and we manage the overall strategy of the company, its implementation and the day-to-day affairs of Orefinders. We rely very heavily on our board which includes Alex and myself but also Claude Bouchard, William Stone and Jeffery Becker. Claude is a very experienced and respected mining engineer who's worked on World class projects in Canada. He's been instrumental in understanding and coordinating all of the engineering aspects behind the Stockpiles as well as Phase Two’s work to date. William Stone is a PhD geologist also with extensive experience. In fact, he completed his Masters thesis on a property right next-door to the Mirado and that is one of the main reasons we asked him to join the board. His experience and knowledge of not only big picture thinking within the region, but also his granular understanding of the project’s geology and how he envisions it being developed have been key.
In addition of our board, our VP of Exploration Kevin Piepgrass and our Manager of Geology Ken Rattee, who lives in Kirkland Lake, have been critical to the progress of our properties since the company’s inception in 2013. The entire team is banded together and made personal sacrifices over the last 12 months even as we've had to cut costs for the benefit of the company. I think we all believe in the potential of the Mirado.
Why is now a good time for investors to consider Orefinders Resources as an option for their portfolio?
It all comes down to value as we need to compete for capital and investment. As of today Orefinders market cap is roughly $3 million. About 2 1/2 years ago we were a $35 million company and that was before we had spent upwards of $6 million on drilling, geophysics and exploration in order to understand what has been done on the property in the past and how we can turn this into a mine down the road. I feel despite this devaluation of the company, which has occurred exclusively as a result of the downturn in the market, we have continued to create value within these assets by gaining a better technical understanding, advancing permitting and expanding its resources.
When I took over this company a year ago, Orefinders was trading at a penny, which is laughable considering the projects we have, however it was a sign of the times. Nothing in the gold space was receiving fair value. While our share price has recovered to a somewhat healthier level, we haven't had the run that some of the larger companies have had. Orefinders is like a spring that has been compressed for too long, and with catalysts such as the stockpile program and additional exploration, I feel we will be in a position to spring back and surpass the valuations we’ve enjoyed in the past.
I am certainly biased in my view, but I think we are a grossly under valued and overlooked company. And one of the very few who have the ability to generate their own revenue. I think the market will recognize this in the near term.
Where do you see Orefinders Resources in five years?
While we have a long term vision for Orefinders, I think five years is too far out to really plan for as there are too many variables at play in the exploration and commodity businesses. Our strategy really revolves around planning 24 months out. Within that timeframe, obviously you'll see the Stockpiles processed, but also our investors can look forward to Phase Two’s implementation for sustainable cash flow generation. If we could complete that development goal within the next 24 months then without question our current valuation is a steal. If you layer on the optionality that comes with the exploration of additional discoveries via our existing targets, the value potential becomes exponential for our shareholders.
FULL DISCLOSURE: Orefinders Resources is a Stockhouse Publishing client.