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Sweet Spot Results

lse:omi

#1

So Arenal has delivered its best, just when the POG was running above $1,300/oz.
Sub $700/oz operating costs and 10k-oz gold for the quarter suggest the grades were very good.
Wasn?t expecting this as Arenal is almost at the end of it?s current run of production.
The plant switches to the new San Gregorio underground mine in November.
Maybe a little of the gold was extracted as the SG ramp and access tunnels were developed.

These results, along with the recent exploration ones auger well for extensions to Arenal in the future. Indeed the whole area between and around Arenal and San Gregorio looks an inviting prospect.

The extra revenues must have come in handy as San Gregorio development completes.

On top of the transition interruptions, guess there will be a leaner period going into Xmas as the SG production ramps up; hence Salazar has not changed output forecasts or costs:

?The Company’s forecast production guidance for FY17 remains between 35,000 to 40,000 oz of gold at operating cash costs of between US$800 - US$900/oz.
As in the past, variations in production and unit costs are expected to occur, quarter on quarter, as the mine plan draws ore from multiple sources at varying grades, stages of development and stripping factors. The Company expects to have higher unit costs in Q2 as underground staff and equipment are transferred from the Arenal UG operation in its final months of production to the SGW UG development which is expected to commence production by the end of November 2016. ?

That?s OK, steady as she goes looking forward.

Expect the share price would have popped a few pence over 20p were it not for the concerns over the POG and its tenuous hold just above $1,250/oz and just below the rising 200 day ma. Picture muddied a bit to extent this largely reflects a stronger $ of late, which is of course good for PM miners.

Still buy on the dips methinks + sell some on the up-spikes. The volatility easily trumps the spread. But build/retain a core holding.


#2

Agreed, excellent update. Production at the top end of estimates - and $4.8m cash generation in this quarter alone against a £17m m/cap.

Net cash of $4.7m in the bank too.

SGW is on track for initial production by the end of Q2, though with higher unit costs in Q2 OMI should at least benefit from the high gold prices at the start of the quarter.

All looking good.


#3

Sell the news and gold looks like going back under $1200 short term i can see weakness here for the next 6- 8 weeks until US rates get hiked or not at the December meet.

Target around 13-14p so not a great deal of downside.


#4

A wise post, thanks. Omi has always been very geared to the price of gold (see the fall to end 2015), however hard they try to cut costs and extend mine life. It is still hard to tell if the rise in POG since January was a retracement in a long gold bear or a turning point, and the fall since July a retracement in a new bull? This is worrying for the price of likes of OMI as however they cut costs and more expensive production they do not have the funds to keep going in sub$1000 gold.


#5

"they do not have the funds to keep going in sub$1000 gold. ". Mr.B

The problem is more fundamental than a scarcity of funds; it’s a lack of quality reserves.

If Orosur has to depend 100% on open pit production [with operational costs $1,100/oz at best] the POG will need to average at least $1,300/oz just to keep going at break-even with sufficient reserve replacement to be sustainable.
That’s why the recent exploration results were so important. They show there is substantially more accessible gold in Arenal+San-Gregorio pits and vicinity.
Of course extending these, let alone developing another new underground mine will require a lot more capital. Still, given operational costs of $700-$900-oz, even a few years life might lower the viability threshold below $1,100/oz if not $1,000.

TS

Pantanilo was supposed to be viable at $1,200/oz gold…but that’s been let go.

Maybe Anza will come up trumps.
But will it then just get part developed and sold off?
Getting it into production is going to be very expensive [new mill etc] and risky for a small miner, even though Orosur has experience of this.