Orvana Boasts Strong Balance Sheet, Multi-Mine Promise

Low-cost gold producer Orvana Minerals (ORV-T) says it will boost production in Bolivia in fiscal 2011, start producing in northern Spain in the first half of fiscal 2011 and release a resource estimate in Michigan in the first quarter of 2010 with a target production date of 2013.

And it’s got the money to do it.

Following the company’s acquisition of Kinbauri Gold in September, Orvana’s cash and equivalents stood at US$58 million as of Sept. 30, the close of its 2009 fiscal year. Its Don Mario mine in eastern Bolivia remains the cash-flow generator, Bill Williams, the company’s vice-president of corporate development explained in an interview at Orvana’s Bay Street office in Toronto.

The high-grade lower mineralized zone at Don Mario yielded its last gold in fiscal 2009, but production of lower-grade ore will continue in 2010 at the company’s nearby second deposit — the small, Las Tojas open-pit deposit — while Orvana gears up to start production from Don Mario’s upper mineralized portion in fiscal 2011.

That zone is expected to extend Don Mario’s mine life to about 2019. Pre-stripping is forecast to start during the second quarter of fiscal 2010 and production at the beginning of fiscal 2011. Orvana estimates preproduction capital costs for the upper mineralized zone to be in the range of US$20 million, which will include installing a leach-precipitation-flotation process.

For now, Bolivia is still Orvana’s cash cow. But in the last two years, management has expanded the company’s assets to more stable political jurisdictions, picking up the Copperwood copper project in Michigan in 2008, and Kinbauri Gold and its advanced El Valle- Boinas/Carles copper-gold project in northern Spain this year.

Rio Narcea Gold Mines had previously operated El ValleBoinas/Carles as an open pit from 1997-2004 and as an underground mine from 2004 to 2006. The mine, in Spain’s Rio Narcea gold belt, closed in 2006 after producing about 950,000 oz. gold and nearly 14,000 tonnes of copper. Rio Narcea sold the mine to Kinbauri Gold in 2007.

Williams believes it will cost the company about US$50 million to put El Valle-Boinas/Carles back into production and expects annual production to be about 100,000 oz. gold and 9 million lbs. copper. At full production, the mine should be the largest gold producer in Europe, the company says.

According to a National Instrument 43-101 resource estimate published in April 2009, El Valle- Boinas/Carles has a measured and indicated resource of 6.4 million tonnes grading 4.7 grams gold per tonne and 0.8% copper for contained gold of 970,000 oz. and 115 million lbs. copper. In the inferred category, the mine has an estimated 7.3 million tonnes grading 5.4 grams gold and 0.45% copper for 1.27 million oz. gold and 76 million lbs. copper.

Key infrastructure including a fully equipped mill that requires some refurbishment is already in place and underground drilling is also under way to upgrade inferred resources to measured and indicated.

Once the environmental permits have been reactivated and a mine plan submitted, Orvana says it will focus on improving the existing underground access and sinking a shaft.

“We hope to be producing by January 2011 and we think US$50 million will get us there,” Williams says. “We’ll be producing about 2,000 tonnes a day of high-grade copper concentrate and with a high gold content, this opens the doors to offtakers.”

Williams adds that after acquiring Kinbauri Gold in September, the company had hired a Spanish general manager by Oct. 1.

Spain’s pro-mining culture where permitting issues are handled by governments at the provincial and local level was appealing to Orvana, particularly after working in Bolivia, which has made it more difficult for mining companies by increasing taxes and adding significant royalties. “You generally don’t have to deal with the national government (in Spain), which was attractive to us,” Williams elaborates.

“They’re not big miners” in Bolivia, Williams says. “They like to lease them out. Overall, investment has been subdued and that’s one of the reasons we wanted to diversify out of Bolivia. The markets gave us no credit for the Don Mario mine.”

In addition to diversifying to Spain, Orvana acquired the Copperwood project near Lake Superior in the upper peninsula of Michigan. Between 1950 and 1980, the property was explored and studied by other mining companies. According to a 1974 historic resource estimate (not compliant with National Instrument 43-101 standards), Copperwood has inferred resources of 21.9 million tonnes grading 1.68% copper for 800 million contained pounds.

Orvana has completed an 82- hole, 13,000-metre drill program at Copperwood and a resource estimate is due in the first quarter of 2010.

Orvana’s Williams likes to point to the nearby White Pine mine to put Copperwood into geographical perspective. White Pine produced more than 1.7 million tonnes of copper between 1953 and 1996.

On Dec. 14, Orvana released its full-year results for fiscal 2009. Revenues came in at US$56 million on sales of 63,230 oz. gold, compared with US$69.1 million on sales of 79,813 oz. gold for fiscal 2008. Lower tonnes of gold sold contributed most to the decline, which was slightly offset by higher average gold prices realized.

Production of 62,644 oz. gold at a total cash cost of US$339.60 per oz. for fiscal 2009 compared with 79,604 oz. produced at US$240.63 per oz. the year previous.

Net income was also lower at US$13.4 million or 12¢ per share for the most recent year, compared with US$25.7 million or 22¢ per share for the same period a year ago.

At presstime, Orvana traded at $1.07 per share. Over the last 52 weeks, the company has traded in a range of 44.5¢-$1.12; it has about 115.2 million shares outstanding.