Update: Orvana Minerals Earnings - Revises Its Resources And EVBC Mine Life Downward; Shares Plunge

Aug.13.14 | About: Orvana Minerals (ORVMF)

Summary

Orvana Minerals reported a loss of $25.9 on more efficient operations but with a large--$25.5 million impairment charge.

More importantly the company reduced its resource base for its flagship EVBC Project and shortened its estimated life.

I got this one wrong last week seeing that I didn't predict the resource decline.

At this point I would cut my losses.

Orvana Minerals (OTCPK:ORVMF) released its Q3 financial results and they were disastrous. The company actually reported relatively strong operating metrics as production costs came down to less than $900/oz, exceeding my expectations. Furthermore, the company's quarterly operating cash flow of $8.8 million looks excellent for a company valued at $67 million.

However, the company also took an impairment charge of $25.5 million while it reported a reduction in resource estimates along with a shorter mine life at its flagship EVBC. This sent shares tumbling by over 20%. Specifically the company now expects that its mine life is going to be just 4 years versus the 8-9 that I had anticipated. Furthermore, production costs estimates soared as well from $900/oz. to $1,100/oz., making the mine far less economical.

This one I simply got wrong. I had more confidence in the quality of the resource than I should have, and while the company may at some point report a larger resource base and lower estimated production costs this revision is bad news that changes my mind on the stock. At this point I think investors would be best off if they cut their losses (23% on the day and 15% since my August 4th recommendation) While this may look like a contrarian buying opportunity keep in mind that the company just said that it is cutting its mine life in half and that it is going to be making half as much money at $1,300/oz. gold, meaning that the EVBC Project just lost 75% of its value. The 23% sell-off today and the 15% sell-off since last Monday seem mild in comparison.

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