(Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.)
Orvana Minerals (OTCPK:ORVMF) is a Toronto-based gold, silver and copper producer with operating mines in Spain and Bolivia. The El Valle-Boinas and Carles mines, collectively referred to as the EVBC mines, are underground gold-copper-silver operations in northern Spain. It also operates the upper mineralized zone at the Don Mario mine (known as the UMZ mine), an open pit gold-copper-silver mine in southeastern Bolivia. In addition, Orvana has completed a feasibility study and has acquired permits for the Copperwood project, a copper-silver mine in Michigan's Upper Peninsula.
Acquired in September 2009 and with commercial production started in August 2011, the EVBC mine is expected to produce on average 73,000 ounces of gold and 2,570 tonnes of copper annually, for its ten-year life. The mine boasts a reserve estimate of 864,276 gold ounces at an average grade of 3.40 grams per ton and 41,590 tonnes of copper at an average grade of 0.53-percent.
The EVBC mine was more challenging than expected when Orvana bought it, going through multiple mine managers in the process. However, things turned around after it sank a new shaft, dramatically increasing its processing rate. Operating metrics at the EVBC mine have markedly improved this year. Orvana increased ore processing at the facility by 35 percent and struck higher grade ores, but still has room for improvement based on assays. Production figures should at least maintain their pace in 2014, especially given that hoist repairs and other upgrades are to be completed early in that year.
With commercial production started in January 2012, the UMZ mine is expected to produce on average 25,000 ounces of gold, 840,000 ounces of silver and 8,400 tons of copper annually for its nine-year life. It has reserves of 176,309 gold ounces at an average grade of 1.27 grams per tonne, 5,569,132 ounces of silver at an average grade of 40 grams per tonne, and 54,629 tonnes of copper at a 1.26-percent average grade.
Production during 2013 was consistent with the previous year, but this was offset by processing higher grade ores. Overall performance was hindered by intermittent work stoppages prior to labor negotiations, but a new deal with the mining union was signed in August. Orvana added more gold gravity concentrators to its process facility in the second half of 2014, which should improve the recovery rate. Bolivia should be viewed with caution, however, as it is among the least safe of mining jurisdictions, as this author previously noted.
Anticipating production as early as 2015, the Copperwood mine is expected to produce on average 25,500 tonnes of copper annually for its thirteen-year life. It has reserves of 385,560 tonnes of copper at an average grade of 1.41 percent and 3,460,000 ounces of silver at an average grade of 3.63 grams per ton. Resource estimates for copper inclusive of Copperwood's satellite properties are 817,212 tonnes at an average grade of 1.34 percent. Orvana practically sailed through the permitting phase and now has all the major documents in hand. Its startup will be contingent on acquiring financing.
A review of Orvana's balance sheet reveals a significant debt liability and its current ratio is a rather weak 1.18. Promisingly, Orvana improved its long-term debt to assets and its current ratio by 20 and 30 percent respectively between fiscal years 2012 and 2013. Furthermore, Orvana's free cash flow rose almost 300 percent in the same period.
Impressively, Orvana increased its revenues in 2013 by eleven percent over the previous year, all while its average realized prices for commodities fell. The company received nine percent less money per ounce for its gold in 2013, while its compensation for silver and copper fell fifteen and six percent respectively.
At $0.44 per share and incredibly low price-to-equity valuations, Orvana seems a bargain. The sum of its mineral reserves represent a 3.95-million ounce gold equivalent. A quick calculation based on shares outstanding computes to about 0.029 ounces of gold equivalent per share, or about $36. Granted this metal is all still in the ground, Orvana is making headway in its operations despite a weak market and an investment, albeit speculative, could be rewarded handsomely if metals prices turn around.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.