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Copied from StockWatchSeptember 27, 1999
With gold up another $21. as we speak everyone's probably looking for low priced
gold stocks that haven't caught on. As no one has mentioned Oroperu and since I've
been in and out of it for six years I thought I should start a discussion. The person that
introduced me to this stock knew the president, Wayne Livingstone personally and
felt that he had an excellent understanding of Peru's geology. This was in 1993.
History
Oroperu started off with a bang with three very promising sites in the El Toro region
and a joint venture agreement with Barrick. At the time the stock was trading over $
4.00. Drilling showed promise but it was a different type of geology than first
expected and the agreement with Barrick expired as the gold market slowly lost
steam and no more suitors came along.
Oroperu made the decision in 1997 to write down El Toro and to buy a small
producer on a large piece of land (46,800 hectares) next to Barrick's (formerly
Arequipa's) Pierina site. Described as an epithermal gold mineralized property east
of Lima, Peru, it came complete with a 450 TPD mill and related mining equipment
and over 20 km of underground development.
Roscoe Postle Associates Inc. of Toronto were hired to conduct a study and
economic analysis of the mine's proposed operation and to continue to quote from
their Oct. 15,1997 in which they announced this acquisition, RPA stated it:
"is of the opinion that the Nueva Condor Mine can operate economically for at least
seven years and that it can generate a stream of positive cash flow. Total operating
costs are expected to be US$35.00 per tonne for the first year and expected to
decrease to US$32.00 per tonne during the second year and thereafter." The RPA
report includes a preliminary cash flow analysis with "positive net present values at
discount rates from 7% to 13% ranging from 9.6 million to $20.6 million."
The underground mine has been refurbished over the past six months and trial
operation of the plant has now been completed. The company's mining plan is to start
production at 200 TPD and increase it to 450 TPD in the second year and produce a
lead and zinc concentrate with gold and silver values. Receipt of a permit to resume
normal operation of the plant is currently pending.
The consideration for the acquisition is the issuance of 5,500,000 common shares of
Oroperu as follows:
a) 3,000,000 shares subject to a pooling agreement and released on a time basis over
27 months commencing 90 days following closing:
b) 2,500,000 shares subject to an "earn out" escrow agreement and released annually
over 5 fiscal years at the rate of one share per US$2.00 of cash flow earned by the
new operating subsidiary. The foregoing "earn out" release mechanism is subject to
be changed at a later date to a time release mechanism should certain stated events
occur relative to future material changes in the new operating subsidiary or the
project.
A finder's fee of up to US$800,000 will be paid on the transaction on the basis of 1%
of net smelter royalties from the operation for the first two years, and 3% NSR
thereafter, until paid in full.
After giving effect to the issue of the above 5,500,000 common shares, there are
33,801,463 common shares outstanding in the shares of Oroperu (2,500,000 shares of
which are being held in escrow as shown above).
The Nueva Condor acquisition raises Oroperu to the status of a junior producer
which will be generating annual net cash flows, while retaining a strong emphasis on
continued exploration and development of its extensive gold and silver mineral
properties in Peru. In addition to its Nueva Condor operations, Oroperu is also
actively developing its Tres Cruces gold project with 50/50 joint venture partner Pan
American Silver Corp. (TSE: PAA).
Following up on their progress I was pleased to find that they are averaging about
100,000 tons of ore per year with over 4,000 tons of lead concentrate, 6,000 tons of
zinc concentrate and 4,500oz of gold and nearly 300,000 oz of silver.
The company has just completed a review done by MRDI/Simons to assess the
feasibility of expanding their operations from 300-350 tpd (actual production at this
time) to 800 tpd. To quote from the August 3,1999 report:
"The company plans to spend $8.1-million on this expansion project, Nueva Condor
also plans to spend $2.7-million on exploration. The property is geologically similar
to a number of nearby world-class mines. It is a significant landholding on which
promising exploration targets have been identified, and already has a producing mine
and established infrastructure. These factors make it a good candidate for further
exploration. "The technical, production, capital and operating cost basis for assessing
this project appear reasonable. Based on a total capital cost of $10.8-million, a
project return of 54 per cent is indicated. To reduce the exploration investment risk,
the project return was based on recouping the $2.7-million expenditure from profits
of the expanded mine." The expansion plan contemplates increasing mine capacity at
the current operation to 600 tonnes per day and augmenting the process ore from the
nearby Condor Pasa mine to achie e 800 tonnes per day. The Condor Pasa mine was
developed in the 1980s to be a stand-alone operation. Reserves were developed but
a plant was not built. The company plans to truck the ore from Condor Pasa to the
expanded plant facility. Exploration is planned to be directed towards the
development of new underground reserves and the evaluation of the larger bulk
tonnage targets on the 50,000 ha. property. One of the nearby polymetallic, structures
to be evaluated for underground mining is the Santa Rosa, which is the strike
extension of the previously mined and developed Aurelio mine. This structure has
been traced on surface for 6 kilometres. A 1.8-metre sample across the Santa Rosa
surface outcrop with fresh sulphides assayed 37.9 gram per tonne gold, 7.9 ounce per
tonne silver, 7.5-per-cent lead and 9.1-per-cent zinc. Road access for development
and drill exploration purposes is in progress. Regional stream sediment sampling and
alteration mapping is also in progress to evaluate the extensive alteration systems on
the property. Oroperu is currently seeking $10-million to $12-million in financing to
implement the proposed expansion. Oroperu has retained Fleming Latin Pacific Peru
S.A. as its fiscal agent to obtain $1.65-million in bridge financing until a larger
financing for the whole project is completed.
The Flemings Group, is part of Robert Fleming, a major British investment bank and
brokerage firm that specializes in mining, having closed among others the largest
stock issue ever in the mining industry, raising $1.6-billion (U.S.) for Billiton.
Conclusion.
Right now I am awaiting the Investor kit as well as several other pieces of geological
information I requested. They are still negotiating the financing, but this should be
much easier to do with metals prices soaring as they are. I also have several
questions for Mr. Livingstone and hope to make contact with him when he returns to
Canada at the beginning of October. I will report back at this time.
This company made a decision to survive by going into small scale production and
await a change in the price of metals so that they could start a complete exploration
program on their large and promising property. They have no real investor relations
and Patricia Kerr, who handles investor relations probably does all of the other
office work as well. They put their money into the ground instead and survived by
doing this. Oroperu's Website is http:www.oroperu.com and their Investor Relations
number is (888) 648-3722
I'll be interested in hearing some other opinions on this one.
regards, goldberg
Comments: Spinner |
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