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Orvana Minerals takes strides towards sustained profitability
A Slow Beginning
Orvana Minerals Corp. (ORV: TSX) got off to a rough start at its gold and copper properties in Spain and Bolivia, but recent results suggest the Toronto-based company has turned the corner towards sustained profitability.
Challenges encountered in bringing the mines into production in 2011 tarnished Orvana's credibility in the markets after the company failed to deliver on a number of its commitments.
At the flagship El Valle/Boinas-Carles (EVBC) gold and copper project in northern Spain there were capital expenditure issues, commissioning delays and staffing difficulties.
And at the company's Don Mario Mine (UMZ) in Bolivia, start-up problems centred on processing of the complex ore.
Changes to the management team in 2012 coincided with a much-improved operational and financial performance.
The EVBC Mine achieved its first full year of commercial production in 2012, and UMZ also achieved commercial production in January 2012 with an improved processing system.
Also in 2012, Orvana's U.S. Copperwood copper project in northern Michigan made significant strides towards becoming fully permitted.
By the end of FY2012, the rejuvenated Orvana team could look back with some satisfaction on production figures of 55,929 ounces gold, more than 15.36 million pounds copper and over 716,000 ounces silver.
Nevertheless, the initial hiccups had left the company with difficulties in servicing its significant debt. It was fortunate to have a majority shareholder, Fabulosa Mines Ltd., prepared to hold out for better times.
Keeping the Faith
Fabulosa, with 52 per cent of Orvana's shares, kept faith with the company by providing capital injections to keep all its projects moving forward.
There was also strong support from a revamped and strengthened board of directors. Among the newcomers was veteran mining executive Michael Winship, who joined the Orvana board in 2013 and just one month later was invited to step in as interim President and CEO.
"It was unexpected," says Winship, whose previous roles included stints as COO of Quadra FNX Mining and President of HudBay Minerals. "But I have a strong background in operations and development, and I was pleased to help out."
Triumph Over Adversity
With Winship's seasoned hand at the helm, Orvana has made rapid progress throughout 2013, cutting costs, boosting production, improving its safety record and targeting new exploration possibilities.
Despite the failure in June of a newly installed hoist at the flagship Spanish operation, EVBC set record production numbers in the second half of FY 2013, contributing to a year-long total of 65,992 ounces of gold, over 6.66 million pounds of copper and 197,768 ounces of silver.
The hoist accident - in which no one was injured - "was certainly a negative for us," says Winship. "But I am particularly pleased about how the operation responded in the face of adversity. Everybody rallied, and we surprised even ourselves by actually growing production, even without that primary hoisting shaft. We are quite proud about that."
Proving his point, throughput at the mill hit an all-time high in August, averaging 2,250 DMT/d, showing that the plant is capable of operating at least 10 per cent above nominal capacity for prolonged periods. Repairs to the hoist should be complete by early 2014.
Meanwhile, production at the UMZ Mine in Bolivia for FY2013 was 14,549 ounces of gold, over 10.6 million pounds of copper and 820,043 ounces of silver.
Winship declared he was "very pleased" that the company met its production targets for FY2013, saying he looked forward to further success in FY2014. Those targets have now been set at 80,000 to 93,000 ounces gold, 18 to 20 million pounds copper and 875,000 to 950,000 ounces silver from the EVBC Mines and the UMZ Mine.
The Bottom Line
Orvana's goal in 2014 is to achieve its production targets while simultaneously driving down costs, controlling capital spending, streamlining its workforce, further improving safety measures and continuing to pay down the company's approximately $40-million in net debt. Under current projections, that debt should largely be cleared in 2016. In the event of unforeseen problems, Orvana has a safety net in the form of a credit facility provided by its majority shareholder through 2014.
Winship says Orvana has "excellent organic growth opportunities" both in Spain and Bolivia.
At its operations in Spain, there is potential to explore and grow both mines, while improving performance in processing and ramping up mill production.
Capital expenditures will be held to a minimum and limited to ongoing underground development and certain necessary sustaining capital. There are plans to spend $2 million in exploration, aimed at adding some half-a-million ounces in resources in Spain.
Safety will continue to be a priority, with a recent statistic showing 230 consecutive days without a lost-time accident. And a number of measures are either planned, or are already in place, to reduce costs.
In Bolivia, Orvana will continue to ramp up gold production, aided by the installation of a gold gravity circuit expected to increase gold recovery from the current average of about 45 per cent to up to 65 per cent.
The company has also switched to the exclusive use of a sulphide flotation process, after terminating the much more costly LPF campaigns.
Orvana is also planning to invest close to $1 million in Bolivia in an attempt to delineate "maybe 680,000 ounces" of gold.
Winship says Orvana wants to become "a 100,000-ounce-per-year producer, while on the cost side we want to lower our all-in-sustaining costs below $1,000 per gold ounce consistently."
Orvana's share price, like every other gold producer, has hit lows.
"It's concerning," says Winship, "but we focus on what we can control and make a difference on. Our model in these times, when everybody is beaten down, is to under-promise and over-deliver. We believe the market is going to turn at some point and people will recognize what we have achieved."
About the Copperwood project, Winship says: "We have moved along steadily though the past two years to get all our permits in place. That is an outstanding achievement."
The remaining challenge is financing a move to production.
A year ago, he says, the market was somewhat skeptical about Copperwood. But, with all permits in place, engineering studies complete and "tremendous community support," the project has added to its lustre.
Orvana is "taking a two-pronged approach" to Copperwood. One possibility is to identify a JV partner. The other is to find an interested buyer. "We have been approached by a number of parties," says Winship, "and we are open to divestiture."
Alan Ferguson
for the Bottom Line Report
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Orvana Minerals Corp.
181 University Avenue
Suite 1901
Toronto, Ontario
M5H 3M7
Tel: 416 369 1629
Fax: 416 369 1402 | |
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