Friday, 11 January 2013

Orvana’s “value can be unlocked” if debt is overcome, says Stonecap Securities


Stonecap Securities mining analyst Christos Doulis is holding his sector perform rating and $1.50 price target on Orvana Minerals (TSE:ORV), following the company’s fourth-quarter results conference call on January 4.

Doulis said despite a turnaround at its operations and positive cash flow, Orvana faces “significant short-term liquidity risk” with about $27 million in debt payments due in calendar 2013, though he points out that some of those payments may be rolled over.
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.
On the conference call on Friday, Orvana reiterated its fiscal 2013 production guidance of 75,000 ounces of gold, 18 million pounds of copper and 850,000 ounces of silver. 
The company also provided cash cost guidance of about $800 per ounce of gold, net of credits at EVBC and co-product cash costs of below $1,000 per gold ounce, $20 per ounce of silver and $2 per pound of copper at Don Mario.
Stonecap’s production forecast for Orvana in calendar 2013 is 76,000 ounces of gold, 763,000 ounces of silver and 16.7 million pounds of copper at a company-wide, net of credits, cash cost of $524 per ounce of gold.
Orvana said that budgeted fiscal 2013 capital expenditures are about $28 million, with about $15 million going toward EVBC, roughly $5.5 million for Don Mario and approximately $8 million for Copperwood, but expects to spend far less than that.
“With its current schedule of debt payments and capex budget, I am just not sure that they are out of the woods yet,” Doulis toldProactiveinvestors
Supporting this thesis, he notes that the company drew down an additional $2 million of its line of credit with its largest shareholder - Fabulosa Mines - subsequent to the end of the fourth quarter. 
“I want to see the short-term, liquidity issues overcome before I can recommend the stock.”
Orvana has roughly $14 million in payments due in 2013 to Credit Suisse, and its Fabulosa credit line - with a principal of $5.7 million as at December 4 - due at year-end. 
During 2012, the company made timely payments to Credit Suisse and reduced the Fabulosa debt by $800,000, said Orvana CEO Bill Williams.
The company is also looking at $7.6 million in short-term bank debt, most of which is 60 to 120-day loans with Bolivian banks for working capital, and about $40 million in other payables.
"We believe the shares could appreciate considerably should short-term liquidity issues be overcome; however, due to the short-term elevated liquidity risk, we are maintaining our Sector Perform rating and $1.50 target," the analyst concluded in his note. 
Doulis' price target of $1.50 is still up considerably from Orvana's current stock price of 88 cents. 
Last month, Orvana said its short term focus is to optimize operations at its EVBC and UMZ mines to generate increased operating cash flows in order to pay down debt, as well as potentially advancing the development of its Copperwood project. 
Its long term goal is to use future cash flow to build long-term value through organic growth and possibly through strategic acquisitions focused mainly on advanced-stage gold and copper properties.

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