Update: Orosur Mining's Earnings

Aug.19.14 | About: Orosur Mining, (OROXF)


Orosur Mining reported strong 2014 earnings results of $5.1 million as production costs came down.

The company's production figures surpassed my expectations.

The company also increased its reserves at San Gregorio.

The shares are inexpensive with a P/E ratio of 4.5 making them extremely compelling.

*Note that Orosur Mining (OTC:OROXF) shares are incredibly illiquid on the OTC market and investors are encouraged to purchase them in Canada under the symbol TSE: OMI.

Orosur Mining reported very strong 2014 earnings results Monday sending the shares 10% higher. The company produced 61,000 ounces of gold, or 1,000 ounces more than I estimated back in March. This figure is down year over year, but more importantly so were production costs. The company's all-in sustaining costs collapsed from $1,600/oz. to $1,050/oz. which meant that the company was able to swing from a loss to a profit.

In addition the company was able to add 75,000 ounces in gold reserves, which should increase the lifespan of San Gregorio by 1.25 years assuming 60,000 ounces of production. Perhaps more importantly this suggests that management will be able to convert more resources into economically extractable reserves. If this is the case then my optimistic scenario from March, in which the mine's value is twice the company's current valuation, becomes much more likely. The stock has been very strong lately although it is up only 5% since I recommended it, as during the April and May downturn in gold miners Orosur shares fell down to about C$0.20/share. The fact that they consolidated at that level--higher than their mid-2013 low of $0.10/share, is very encouraging from a technical standpoint.

The shares remain undervalued based on the cash-flow potential from San Gregorio as well as from the company's exploration stage Pantanillo Project, which I described in March as a free gold option. Also since my March article the company bought an exploration property called Azna in Columbia, which shows that management is using its free cash-flow from San Gregorio to expand.

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