Monday, 24 December 2012

Orvana Minerals starts to generate positive free cash flow, says broker, but rating maintained

Stonecap Securities mining analyst Christos Doulis has kept his sector perform rating and $1.50 target on Orvana Minerals(TSE:ORV) after the company reported fourth quarter results on Friday. 
The analyst notes that Orvana has reported cost data in line with prior estimates and has begun to generate free cash flow, but it continues to face working capital constraints. 
For the quarter that ended September 30, the multi-mine gold and copper producer reported a net loss of $2.0 million, but adjusted net income was positive at $12.3 million, or 9 cents per share. 
This compares to an adjusted net loss of $4.8 million, or 4 cents per share, in the year-ago period. 
Revenues rose to $50.6 million from $10.6 million in the fourth quarter of last year. 
Orvana's primary asset is the El Valle-Boinas/Carles (EVBC) gold-copper mine in northern Spain. It also owns and operates the Don Mario Mine in Bolivia, processing its copper-gold-silver Upper Mineralized Zone (UMZ) deposit, and is advancing its Copperwood copper project in Michigan, USA. 
Cash flow provided by operations before changes in working capital was $14.5 million in the quarter and capital expenditures were $12.6 million, resulting in positive free cash flow of $1.9 million. 
Cash costs at its EVBC mine were $720 an ounce of gold in the quarter, in line with the company's previous estimate of $750 an ounce, Doulis notes, and down from $806 an ounce in the previous quarter. 
Co-product cash costs at Don Mario were $1.92/lb copper, $969/oz gold and $18.69/oz silver, also in line with Orvana’s previous forecast. 
"While beginning to generate positive free cash flow is a major milestone for Orvana, given the small amount of free cash flow generated and the substantial debt still on Orvana’s balance sheet, we expect working capital to remain constrained," Doulis concludes. 
The analyst will review his estimates and valuation following the release of Orvana's full financial results and conference call, which is scheduled for January 4. 
Doulis' price target of $1.50 is still up considerably from Orvana's current stock price of 81 cents. 

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