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House broker says - still cheap?

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Cantor Fitzgerald suggested that despite the share price more than doubling in the last 12 months, the shares are still cheap
South America-focused gold miner Orosur Mining Inc (LON:OMI, CVE:OMI) has increased its forecast production guidance for the current financial year (FY17).

Guidance has been increased to between 35,000 and 40,000 ounces of gold at operating cash costs of between US$800 and US$900 per ounce, up from previous guidance of 30,000 to 35,000 ounces at US$850-950 an ounce.

Orosur said it expects to benefit from the savings generated by the ongoing optimisation of operations as well as higher grades from the San Gregorio West Underground (UG) project in Uruguay.

The upgrade came in the company¿s results statement for the year to 31 May, 2016, in which it revealed gold production in the financial year just ended came in at 35,773 ounces, a little bit ahead of guidance, which was for between 30,000 and 35,000 ounces.

Cash operating costs reduced to US$877 an ounce from US$912 an ounce in the previous financial year and towards the lower end of the US$850 ¿ 950 an ounce guidance range.

All-in-sustaining costs (AISC) of US$1,069/oz was an improvement on the previous year¿s US$1,185/oz, and in line with guidance of US$1,000 ¿ US$1,100/oz. AISC fell below the US$1,000 an ounce level in the third and fourth quarters of fiscal 2016.

Revenue declined to US$42.87mln from US$65.87mln the year before, reflecting lower production and a decline in the price of gold. The average gold price received from sales eased to US$1,154 an ounce from US$1,232 an ounce the previous year.

Loss before tax narrowed dramatically to US$3.16mln from US$49.4mln the previous year, when the company took a US$45.55mln hit on foreign exchange movements.

During the reporting period the company reduced its debt to US$400k from US$1.5mln and had a positive cash balance at the end of the period of US$4.3mln, down from US$4.8mln a year earlier.

¿Thanks to the success we enjoyed in improving operations and reducing costs in Uruguay, we were able to repay the majority of the company¿s outstanding debt, while also progressing vital growth projects. This work affords the company the opportunity to take advantage of a more positive market environment which currently exists,¿ said Ignacio Salazar, chief executive of Orosur.

¿The company has been evaluating a number of options to advance the highly prospective Anzá project in Colombia, and is refining a geological model and carrying out some exploratory metallurgical and density test work,¿ he added.

¿At an average gold price of US$1,154/oz for FY16, the company returned to gross profitability and managed to increase its net cash balance. While this was ongoing, we commenced development of San Gregorio West UG project with first blast work occurring on May 12th 2016. This mine will be the second mechanised UG mine in Uruguay after our Arenal Deeps underground mine. The granting of a one year exemption on royalty payments by the Government of Uruguay, in this difficult period, represented a significant endorsement to our company and the way we operate,¿ Salazar said.

The Orosur boss conceded the financial year just gone had been a challenging one but added that, for the first time since early 2013, the company is seeing signs of market improvement.

The shares dipped to 20.5p from 20.75p in early trading, but are up more than 256% year-to-date.

House broker Cantor Fitzgerald said Orosur¿s results were ahead of its forecasts and confirmed the increased profitability that had resulted from the cost-cutting programme that kicked off a year ago.

¿While our estimates will need some adjustments, based on a US$1,321/oz gold price we are currently forecasting a significant increase in OMI’s earnings next year, placing OMI on multiples of just 1.2x EV/EBITDA [enterprise value/underlying earnings] and 2.4x P/E [price/earnings] despite the share price having doubling in the past 12 months. Hence, we believe there must be more upside to the share price from this level and we reiterate our BUY recommendation and TP [target price] of 32p.¿ said Cantor¿s Robin Byde.