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Orvana Minerals Kept At Outperform By Stonecap Securities; Full Year Guidance On Track

Jul. 09, 2013 2:41 PM ET
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Stonecap Securities analyst Christos Doulis maintained his outperform rating and $1.00 price target on Orvana Minerals(TSE:ORV) Tuesday, citing the company being on track to meet its production guidance for the year.

On Monday, the company provided a corporate update, reporting that an alternative production schedule at its main El Valle-Boinas/Carles (OTC:EVBC) mine in northern Spain as a result of a hoist incident reported last month has allowed it to maintain its output forecast for the year following record production in its fiscal third quarter.

Production in the quarter from the mine was a record 18,500 ounces of gold, 1.9 million pounds of copper, and 58,800 ounces of silver, up significantly from the previous quarter's production of 16,800 ounces of gold, 1.5 million pounds of copper and 41,800 ounces of silver.

The company said it completed an alternative production schedule at the Spanish property in response to a hoist incident last month, with the new plan including the use of ramp haulage for Boinas skarns -- the methodology used prior to the hoist system becoming operational -- as well as greater oxide mining at the Boinas mine and an increase in overall production at the Carles mine.

The revised schedule will allow the miner to maintain its full year output guidance, for the 12 months ending September 30, of 75,000 ounces of gold. Doulis as a result maintained Tuesday his calendar 2013 estimate of 76,000 ounces of gold, 16.7 million pounds of copper and 763,000 ounces of silver.

The company also said Monday that government authorities have released the hoist site at Boinas, with Orvana tasked with developing a detailed recovery plan. Insurance adjusters have visited the site, and an internal investigation is ongoing. In late June, Orvana reported that a fully loaded skip overran the safety interlocks in the headframe, and that the hoisting rope broke, with the skip dropping to shaft bottom damaging the loading pocket.

International shaft and hoist expert contractors and consultants have been to the site as part of the internal investigation, who are expected to provide recommendations on the shaft recovery.

"While Orvana's internal investigation into the hoist incident continues, preliminary estimates are that repairs will take 4-6 months and cost $2.5m to $3.5m, we have added $3m in costs to our model," noted analyst Doulis in an emailed research note sent Tuesday. Orvana says it does not have any reason to believe that the costs will not be covered by insurance.

The company remains focused on increasing its cash flow and production and is reviewing ways to keep operating and capital costs down given the recent metal price volatility. It also recently secured the Safe Dams permit for its Copperwood copper project in Michigan, with a feasibility study underway at the property.

"Despite the hoist incident in June, Orvana has posted another strong month of production at EVBC and record quarterly production," concluded the Stonecap analyst.

Shares of Orvana are trading at 42 cents on Tuesday, up one penny from its previous close on Monday.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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