Update: Orvana Minerals Reports Q1 2015 Operating Results

Summary

• Orvana Minerals reported strong production on higher ore grades, offset by rising costs on a by-product basis.
• I hadn't expected costs to rise, although this isn't surprising considering the weakness in the copper and silver markets.
• Shares seem to have bottomed, but the issue of diminished reserves at EVBC restrict the upside potential in the near term.

Note that there is more liquidity in Canada (TSE: ORV), and investors with access are encouraged to purchase shares on the TSE.

Orvana Minerals (OTCPK:ORVMF) announced its Q1 2015 production results. The good news is that net production rose in spite of lower throughput as ore grades rose. Gold production rose from 18,900 oz. to 22,200 oz., with most of the production increase attributable to the company's smaller Don Mario project in Bolivia, which saw an increase in gold production to 6,900 oz. from 4,900 oz. The EVBC project saw a slight increase from 14,000 oz. to 15,300 oz.

Despite this good news costs rose. The company's estimated AISC for the quarter rose from $948/oz. to $980/oz. This is primarily due to a reduction in the value of by-product credits as silver production declined and as the values of silver and copper are both down as well.

Investors will recall that I recommended Orvana shares given my expectation of rising production and lowering costs. We've seen that the fall in by-product credits have largely nullified the latter part of this thesis. Furthermore, the company subsequently came out and reduced the reserve estimate for its flagship EVBC project which radically reduces that mine's NPV on a DCF basis. The market seems to have bottomed, but I am concerned that this reduction in reserves will cap the upside potential even if the company is cheap relative to its peers on a price-to-operating cash-flow basis, and despite the fact that it has been paying down debt and has $18 million in cash vs. a $43 million valuation.

With that being said, this is an intriguing speculative stock should management be able to add back ounces to its EVBC reserve estimate given that investors have already priced out this possibility.

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