Canadian junior miner Orosur Mining (LON:OMI) has been in the headlines a lot over the last few weeks, partially because COVID distorted the usual reporting time frame and the company released both its annual results and the first quarter within four days of one another. But the underlying news has been sufficiently positive to merit a 10-fold jump in the share price since June as the company works with the backing of Newmont Mining (NYSE:NEM) to start exploration of its Anza gold prospect in Colombia.
Orosur Mining has nearly wiped its slate clean from the closure of its San Gregorio mine in Uruguay which dragged behind it a tail of debt and remediation. One of the key moves this year was putting in place a new management team lead by chief executive Brad George, another one has been the gradually selling off of its Uruguayan assets and paying off of the San Gregorio creditors.
What has marked the turnaround for Orosur was getting the world’s largest gold miner Newmont on board as its financial backer in 2018 and has allowed the company to shift its focus fully onto exploring its Anza project. The deal has already provided a steady inflow of cash in the region of $500K every six months and should continue to finance the Anza exploration for some time to come.
What does the Newmont-Orosur deal look like?
The Newmont-Orosur deal struck in 2018 foresees financing in three phases over a period of 12 years which will eventually see Newmont spend at least $30m in total to earn up to 75% ownership of Anza. In the first two years Newmont committed to paying $1m per year and in years three and four, that is 2021 and 2022, the payments should increase to $4m per year. By the end of the first four years Newmont will hold 51% in Orosur.
Although Orosur updated in detail on the financial progress and the payments from Newmont – the company received an initial funding of $650,000 in October and is due to receive a delayed payment of $582,000 by early November – there hasn’t been much progress so far on the exploration front.
“Minera Anza is well advanced in the refurbishing of its field camp at Anza in readiness for the commencement of field activities as soon as possible given the limitations currently imposed by the Covid-19 pandemic,” the company said at the end of September. The pipeline of projects planned for the side includes re-logging of core geophysical surveys and extensive drilling campaigns.
What is happening to the Uruguay trust shares?
The only thing that prevents The Armchair Trader from giving this company an unequivocal thumbs up are a few questions about its Uruguay operations. Orosur closed its San Gregorio mine in Uruguay in 2018 because its underground operations yielded lower than expected grades. Like with most mine closures, there is a relatively costly cleaning up process at the end that requires dealing with the environmental side effects of the mining operations, such as tailings that contain the toxic waste from the chemicals used in mining. Orosur’s Uruguayan subsidiary Loryser is slowly dealing with all these issues and also selling off its remaining local assets.
As part of a package to pay off San Gregorio’s creditors the company issued 10 million shares, which have been put in a trust fund and, together with a planned sale of its Uruguayan assets, should be enough to pay off the creditors.
But it is unclear what is happening with those 10 million shares, who is holding them, and when are they likely to be activated. A payment agreement that has been approved by Uruguayan courts requires the process to be completed by September 2021. We asked the company for further details but their media office wasn’t very forthcoming with answers.
Still, as long as it has Newmont Corporation on its side, Orosur remains an interesting play, particularly in the short term. Newmont seems to be in the Anza project for the long run – 12 years, in fact, during which it will get hold of an increasingly large part of the company’s shares. So, apart from the financing of the Anza exploration, future trading signals should also be coming from the actual exploration pipeline which should provide some interesting information over the next 12 months.