Speculating in junior mining equities is a dangerous—and sometimes
extremely lucrative—game. Some of the key qualities that lay the groundwork
for shareholder value creation in an exploration play are:
- Serially successful management
- High-quality projects
- Stable jurisdictions
- The right commodity, at the right time
- Tight share structure
Discovery drill plays carry both the most risk and potential reward. A
discovery can create tremendous—even life-changing—shareholder value. But
it's only the drill—aka the "truth machine"—that will determine
whether an economic ore body lurks beneath the surface. Orestone
Mining Corp. (ORS:TSX.V) is funded to drill two large porphyry targets in
British Columbia and Chile and has positioned itself for success by ticking
the above boxes.
Next comes a drill program at Orestone's Captain property, which is host
to a large gold-copper porphyry target near Centerra's Gold's Mount Milligan
copper-gold mine northwest of Prince George. Orestone plans to drill between
1,000 and 1,250 meters in five holes at its Admiral target. The project is
located on flat terrain and accessible via logging roads, making it suitable
for year-round exploration.
Mobilizing the drill at the Captain project.
I initiated coverage on Orestone at 7 cents in Resource Opportunities on
Sept. 26, 2018, and the stock has since traded as high as 25 cents. Shares
now trade at 12.5 cents, giving the company a market capitalization of about
$3 million—very modest compared to other cashed-up, high-potential drill
plays. Orestone has about $700,000 in the treasury and is raising another
$500,000 in flow-through funds to drill Captain. The company is selling
16-cent units, each of which includes one flow-through share and half a
warrant (one-year, 22-cent).
Orestone has a clean share structure, with a serially successful
management team advancing two high-caliber projects in neighborhoods that
host very large mines. Let's take a closer look.
MANAGEMENT
Orestone's chairman and CEO David Hottman and Gary Nordin, an Orestone
director and senior consulting geologist, have deep industry experience with
successful companies including Bema Gold, Eldorado Gold, Nevada Pacific Gold
and Polaris Materials. All of those companies were acquired by larger
companies except for Eldorado Gold.
Nordin, a co-founding director and VP of Bema, has been directly involved in
several multi-million-ounce gold discoveries, including Refugio in Chile
(6–8M oz). He was also a co-founder, director and VP of Eldorado, where he
was involved in the Kisladag discovery in Turkey (12M oz) and La Colorada in
Mexico (1M oz). Hottman owns about 5.3% of Orestone's outstanding shares;
Nordin owns 4.2%.
The latest team member is Bruce Winfield, appointed president on June 3,
and I recently stopped by Orestone's modest Vancouver offices to meet him.
Winfield is a Spanish-speaking geologist who got his first taste of Latin
America working on the Cerro Colorado porphyry deposit in Panama for Texas
Gulf. He later spent three years working in Spain, including opening a
Boliden office in Madrid.
Orestone president Bruce Winfield
When Winfield returned to North America, Latin America was opening up to
mining and his language and operations skills were in demand. He spent seven
years working for Greenstone Resources, where he helped acquire and develop
four deposits that later became producing mines. One of those was La Libertad
gold mine in Nicaragua, the first asset sold after the defeat of the Sandinista
government. La Libertad later became one of B2Gold's foundational assets
(B2Gold recently sold La Libertad to Calibre Mining).
Winfield also spent two years working with Hottman and Nordin at Eldorado
Gold, where he was VP Exploration. The focus during his first year there was
to increase the resources at the La Colorada mine in Sonora, Mexico, to
expand production. La Colorada is now owned by Argonaut Gold. During his
second year at Eldorado, the company bought Gencor's Brazilian and Turkish
assets, which included nearly 24,000 square miles of exploration land
including several small resources. Persistent exploration subsequently
yielded the prolific Kisladag gold porphyry discovery. Winfield was most
recently president and CEO of Defiance Silver (DEF-V), a Mexico-focused
silver exploration company.
Orestone's bench strength extends to the board. Director Julia Aspillaga
is a Chilean national who played a key role in the development of the Refugio
deposit for Bema Gold and also brought the group the Cerro Casale project,
where a mineral reserve and resource of more than 23 million ounces of gold,
5.8 billion pounds of copper and 58 million ounces of silver has been drilled
off. Barrick Gold and Newmont-Goldcorp are now 50-50 partners on the project.
Daniels is a mining engineer who graduated from the Colorado School of
Mines and has worked in 13 countries and more than 50 projects with companies
including Gustavson Associates and Caterpillar. Daniels worked on the startup
of Bema Gold's Champagne gold mine in Idaho, the company's first producing
asset, in 1989-90.
PROJECTS
The flagship Captain project in northern British Columbia is a gold-copper
porphyry target about 30 kilometers (18.6 miles) south of Centerra Gold's
open-pit Mount Milligan copper-gold mine. With drill permits in hand,
Orestone is mobilizing the rig and plans to start drilling later this week,
once the flow-through financing closes. During the last drill program, in
2013, hole C13-03 hit a three-meter xenolith fragment of highly altered rock
grading 1.9 g/t gold and 0.226% copper over three meters, within a
post-mineral dyke.
Geologists Gary Nordin, left, and Barney Bowen check out historical core.
Orestone's Gary Nordin believes that fragment is a transported piece of a
2-kilometer by 1-kilometer monzonite porphyry body that correlates with an
Induced Polarization (IP) anomaly. The drill will target that interpreted
mineralized body with five initial drill holes and about 1,000 to 1,250
meters. The modest program has the potential to hit "pay
dirt"—Mount Milligan to the north has proven and probable reserves of
4.7 million ounces of gold and 1.8 billion pounds of copper.
The Resguardo project is an 11.3-square-mile copper-gold porphyry target
that covers historical oxide copper workings northeast of Copiapo, Chile. A
large IP chargeability anomaly under the oxide copper suggests there could be
a sulphide copper porphyry at depth—theory that has never been tested. That's
the target for Orestone's planned drill program. There are several giant gold
and copper-gold deposits within 100 kilometers of Resguardo, including El
Salvador (CODELCO), Cerro Casale (Barrick/Newmont-Goldcorp), Candelaria
(Lundin Mining) and Maricunga (Kinross).
STABLE JURISDICTION
British Columbia has its detractors, but the province remains a favorable
place to operate large mines. Australian gold giant Newcrest evidently thinks
so, having recently purchased a 70% interest in Imperial Metals' Red Chris
mine for US$807 million. So does Teck, which operates copper and coal mines
in B.C. and recently bought a 14% stake in B.C. copper-gold explorer Sun
Metals.
As for Chile, the nation produces up to a third of the world's copper and
plenty of gold. Much of the metals come from giant deposits—of 5-30 Moz gold
and/or more than 5 million tonnes of contained copper. Chile is recognized as
one of the most stable mining jurisdictions in the world. And in director Julia
Aspillaga, Orestone has a capable operator with excellent in-country
connections.
COMMODITY
The gold market has come alive and looks better than it has in years—since
2013, to be precise. And back then, gold was on its way down after hitting
US$1,900 an ounce. Copper has been weaker—along with the other base metals—on
U.S.-China trade wars and growing fears about the health of the global
economy. The civilization metal appears to be basing at the US$2.60 level.
Copper's long-term demand case remains intact, however, and a supply crunch
is looming as legacy mines deplete their reserves and begin to shut down.
Orestone's timing could be fortuitous. The company is focusing on a
deposit type—gold-copper porphyrys—that is expected to produce an increasing
amount of the world's gold, according to a July 2014 article in the Society
of Economic Geologists newsletter. Copper-gold porphyrys have only been mined
since the 20th century. Orogenic gold deposits have been mined for thousands
of years, while the Witwatersrand has been producing gold since the late 19th
century. Production in the rich South African gold belt—an important gold
source—has steadily declined since 1970.
Orestone has two planned drill programs in "elephant country"
for porphyry deposits. With drilling success, the company projects could
eventually contribute to global gold and copper production in already
established mining camps. Owning Orestone shares gives you exposure to two
large exploration plays and the potential for a dramatic rerating from the
current $3-million valuation.
Orestone Mining Corp. (ORS-V)
Price: $0.125
Shares outstanding: 23.8 million (39.6M fully diluted)
Market cap: $3 million
James Kwantes is the editor of Resource
Opportunities, a subscriber supported junior mining investment
publication. Kwantes has two decades of journalism experience and was the
mining reporter at Vancouver Sun, the city's paper of record.
[NLINSERT]
Disclosure: James Kwantes owns Orestone shares and the
company is a sponsor of Resource Opportunities. Orestone is a lightly traded,
high-risk junior exploration stock. This is not financial advice and all
investors need to perform their own due diligence.
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