A transformational deal with Newmont

Orosur Mining 11 September 2018 Update
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Orosur Mining

A transformational deal with Newmont

Newmont farm-in

Metals & mining

11 September 2018

Price

4.65p

Market cap

£6m

US$/£:1.31

Net debt (US$m) at 31 May 2018

0.6

Shares in issue

146.8m

Free float

86%

Code

OMI

Primary exchange

TSX

Secondary exchange

AIM

Share price performance

%

1m

3m

12m

Abs

45.3

13.4

(74.5)

Rel (local)

52.1

19.4

(74.4)

52-week high/low

18.1p

1.6p

Business description

Orosur Mining owns (100%) the San Gregorio gold mine in Uruguay (on care and maintenance) and controls the highly prospective, high-grade Anzá gold property in Colombia, which is now subject to an exploration and option agreement with Newmont Mining.

Next events

Q1 results

October 2018

Analysts

Tom Hayes

+44 (0)20 3077 5725

Charles Gibson

+44 (0)20 3077 5724

Orosur Mining is a research client of Edison Investment Research Limited

Orosur (OMI) has secured US$2m (at a 229% pre-deal premium to its share price) via a private placement with Newmont Mining (NEM) in relation to its Anzá project in Colombia. This alleviates OMI’s near-term corporate cash requirements and provides it with a funded route for Anzá through to production. Considering the beleaguered state of OMI before this with production at its Uruguay assets on care and maintenance, this initial financing from one of the world’s pre-eminent gold miners offers a realistic development route to realising Anzá ’s potential value.

Year end

Revenue (US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

5/16

42.9

3.2

(1.2)

0.0

N/A

N/A

5/17

44.2

2.1

2.6

0.0

2.3

N/A

5/18

37.1

(2.4)

(26.4)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Exploration and option agreement

This agreement allows NEM to farm-in up to 75% of the Anzá project. This requires total staged expenditure of US$30m, spread over three phases, and in addition also financing both a PFS and a bankable FS and paying US$4m in cash to OMI. NEM purchased an initial 29.2m shares at C$0.091 (£0.053) for gross proceeds of US$2m, reflecting a pre-deal share price premium of 229%. Phase 1 will see NEM earn 51% by paying US$10m in qualifying payments over four years and in addition US$2m in cash to OMI in the first two years. Phase 2 allows NEM to earn another 14% by spending US$20m, and financing a NI43-101 PFS and making a further US$2m in cash payments. Phase 3, if reached by NEM, will see the mining major earn its final 10% in the Anzá project by financing and completing an NI43-101 bankable FS within four years (ie 2026 to 2030). OMI also has the option to obtain financing from NEM for its share of mine development costs if NEM decides to proceed to production, with NEM’s share in the project increasing by 5% to 80%.

Interest on the Pacific shoulder of South America

We understand from management this deal has followed a number of site visit trips by NEM’s staff to Anzá. Highlighting NEM’s early confidence in Anzá being able to yield a mineral resource of suitable size and grade for it to develop (ie in the order of 3–4Moz Au) with anything smaller likely returned to, and benefiting OMI considerably in the long term. The region is seen as opening up a continuation of the world-class copper and precious metal regions of southern Peru and Chile.

Financials: FY18 results left OMI on a cliff edge

FY18 results were announced on 30 August 2018. OMI’s production of 27,586oz was sold at an average gold price of US$1,280/oz and incurred all-in sustaining costs of production of US$1,453/oz. These higher costs reflected OMI’s mining of lower than anticipated gold grades at San Gregorio and increased brown fields exploration. At 30 August 2018 the company had a small cash balance of US$0.45m, debt of US$1.9m and a net working capital deficiency of US$10.9m.

Exhibit 1: Financial summary

US$'000s

2014

2015

2016

2017

2018

31-May

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

80,370

65,868

42,866

44,226

37,100

Cost of Sales

(72,905)

(69,715)

(42,073)

(40,271)

(38,170)

Gross Profit

7,465

(3,847)

793

3,955

(1,070)

EBITDA

 

 

23,935

10,708

9,121

9,436

6,705

Operating Profit (before amort. and except.)

5,197

(5,861)

3,146

2,293

(2,196)

Intangible Amortisation

0

0

0

0

0

Exceptionals

(869)

(43,164)

(6,328)

(101)

(24,807)

Other

0

0

0

0

0

Operating Profit

4,328

(49,025)

(3,182)

2,192

(27,003)

Net Interest

(666)

(376)

24

(164)

(177)

Profit Before Tax (norm)

 

 

4,531

(6,237)

3,170

2,129

(2,373)

Profit Before Tax (FRS 3)

 

 

3,662

(49,401)

(3,158)

2,028

(27,180)

Tax

1,461

(4,975)

1,948

557

(3,143)

Profit After Tax (norm)

5,123

(54,376)

(1,210)

2,585

(30,323)

Profit After Tax (FRS 3)

5,123

(54,376)

(1,210)

2,585

(30,323)

Average Number of Shares Outstanding (m)

78.1

96.6

97.6

99.9

114.7

EPS - normalised (c)

 

 

6.6

(56.3)

(1.2)

2.6

(26.4)

EPS - normalised fully diluted (c)

 

 

6.6

(56.3)

(1.2)

2.6

(26.4)

EPS - (IFRS) (c)

 

 

6.6

(56.3)

(1.2)

2.6

(26.4)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

9.3

-5.8

1.8

8.9

-2.9

EBITDA Margin (%)

29.8

16.3

21.3

21.3

18.1

Operating Margin (before GW and except.) (%)

6.5

-8.9

7.3

5.2

-5.9

BALANCE SHEET

Fixed Assets

 

 

79,278

34,992

30,661

37,731

16,607

Intangible Assets

41,955

18,330

20,555

21,571

10,029

Tangible Assets

37,323

16,662

10,106

16,160

6,578

Investments

0

0

0

0

0

Current Assets

 

 

28,410

20,925

18,159

18,033

9,040

Stocks

14,254

14,362

12,069

13,157

6,100

Debtors

3,338

1,775

1,770

1,519

1,550

Cash

10,818

4,788

4,320

3,357

1,390

Other

0

0

0

0

0

Current Liabilities

 

 

(17,919)

(15,073)

(11,199)

(14,963)

(19,782)

Creditors

(13,941)

(13,944)

(10,946)

(14,761)

(18,052)

Short term borrowings

(3,978)

(1,129)

(253)

(202)

(1,730)

Long Term Liabilities

 

 

(6,789)

(6,958)

(5,426)

(5,606)

(5,494)

Long term borrowings

(961)

(352)

(99)

(201)

(211)

Other long term liabilities

(5,828)

(6,606)

(5,327)

(5,405)

(5,283)

Net Assets

 

 

82,980

33,886

32,195

35,195

371

CASH FLOW

Operating Cash Flow

 

 

22,767

11,753

6,539

12,349

8,013

Net Interest

(666)

(376)

24

(164)

(177)

Tax

0

0

0

0

0

Capex

(13,062)

(12,835)

(6,612)

(13,199)

(14,235)

Acquisitions/disposals

0

0

0

0

0

Financing

0

0

710

0

2,894

Dividends

0

0

0

0

0

Net Cash Flow

9,039

(1,458)

661

(1,014)

(3,505)

Opening net debt/(cash)

 

 

3,362

(5,879)

(3,307)

(3,968)

(2,954)

HP finance leases initiated

0

0

0

0

0

Other

202

(1,114)

0

0

0

Closing net debt/(cash)

 

 

(5,879)

(3,307)

(3,968)

(2,954)

551

Source: Orosur Mining

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Orosur Mining and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Orosur Mining and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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