VANCOUVER — Orla Mining (TSXV: OLA; US-OTC: ORRLF) may have scored a “fire-sale” deal on Goldcorp’s (TSX: G; NYSE: GG) Camino Rojo gold-silver project that lies 50 km southeast of Goldcorp’s large Penasquito polymetallic mine in Zacatecas State, Mexico.
As announced June 21, Orla will acquire the oxide asset for 31.9 million shares and a 2% net smelter return royalty. The details imply a $35-million valuation.
Camino Rojo hosts proven and probable reserves of 75.5 million tonnes grading 0.7 gram gold per tonne and 14.22 grams silver per tonne for 1.7 million contained oz. gold and 34.53 million contained oz. silver. Measured and indicated resources total 223.1 million tonnes at 1.05 grams gold and 8.02 grams silver for 7.5 million contained oz. gold and 65 million oz. silver.
Goldcorp bought Camino Rojo in early 2010 via a US$300-million, all-share acquisition of Canplats Resources, and then spent US$150 million in technical work including more than 250,000 metres of drilling as well as airborne-gravity, and magnetic and transient electromagnetic surveys.
“You have to remember it was a different time in the gold cycle and assets were much more expensive,” said Orla non-executive chairman Charles Jeannes, who joined the Orla in May but served as Goldcorp’s president and CEO between 2009 and 2016.
“Goldcorp has a large project-development schedule. As they have acquired new assets, I assume Camino Rojo has moved down the list — and here’s an opportunity for us to come in, focus and create value for [them] through their shareholdings, and back-in right on the sulphides.”
Goldcorp can reclaim a controlling interest in Camino Rojo under two conditions, which both involve prefeasibility-level sulphide projects. The conditions include: a scenario where sulphide ore is processed at Penasquito, which would entitle Goldcorp to a 70% interest, or where Orla outlines at least 500 million tonnes of proven and probable reserves, wherein Goldcorp would assume a 60% interest.
Camino Rojo’s Represa deposit sits in a “broad, alluvial pediment along the eastern Mexican fold-belt,” where folded Mesozoic clastic and carbonate sedimentary units have been intruded by intermediate composition and felsic dikes.
The host formation is reportedly the same as that peripheral to the diatremes at Penasquito.
A preliminary economic assessment (PEA) was released on Camino Rojo in 2009. The proposed 20,000-tonne-per-day operation was scheduled to produce 122,300 oz. gold annually over a 10.4-year mine life. Goldcorp estimates gold and silver recoveries of 75% and 27%.
Orla’s chief operating officer Hans Smit says his company’s strategy is to “get going pretty much right away. We have a large amount of previous drilling so we don’t need a capital-intensive program here.
Smit said Orla will rebuild the geological model at Camino Rojo and take a second look at metallurgy and recovery estimates. “
“If it goes as well as we hope, that will roll right into a PEA,” Smit said. “We won’t forget about the sulphides, but the way to add value to the company is to quickly advance the oxide project.”
Orla has some heavy hitters as shareholders.
Franco-Nevada (TSX: FNV; NYSE: FNV) chairman Pierre Lassonde holds a 10% equity stake, while Agnico Eagle Mines (TSX: AEM; NYSE: AEM) held 18.6% in the company just prior to the Camino Rojo deal. Goldcorp will end up with a 19.9% pro-rata equity interest when the deal closes.
BMO Capital Market analyst Andrew Kaip said that Goldcorp’s sale of Camino Rojo comes “at a fire-sale valuation,” and that he previously valued the project at US$300 million based on current oxide reserves.
Kaip also noted the project could run into developmental “constraints” with its open pit, since Mexico’s Fresnillo (LON: FRES; US-OTC: FNLPF) owns the land north of the deposit.
Orla has traded in a 52-week range of 22¢ to $1.75. On the Camino Rojo news shares gained nearly 27%, or 29¢, en route to a $1.39-per-share close at press time.
The company has 128 million shares outstanding for a $178-million market capitalization,
Orla is also advancing the Cerro Quema oxide-gold project in Panama, and reported $22 million in working capital at the end of March.
“When we set out to create a high-quality gold company two years ago, we felt a number of opportunities in the Americas could become cornerstone assets and drive growth,” Orla president and CEO Marc Prefontaine said. “We identified these two advanced heap-leach opportunities in good mining jurisdictions. First, we acquired Cerro Quema. Now we’ve finally added Camino Rojos.”