Orosur Mining Inc. Announces Strategy of the Company
Orosur Mining Inc. (“Orosur” or the "Company") (TSX: OMI) (LSE: OMI) today announces an update on strategy.
Statement on Strategy
David Fowler, Chief executive said:
“The Board of Orosur Mining Inc met in Uruguay and Chile last week to discuss objectives, strategy and issues facing the Company going forward.
Operational performance in the second half of the 2011/12 fiscal year has negatively impacted our cash position and deferred our ability to build cash on our balance sheet. As such our objective over the next 12 months is to deliver operational performance and build our cash position. We expect that this will put us in a position to pay a meaningful dividend, while continuing to provide funding for extending the mine life at San Gregorio and investing in our existing exploration assets.
In all other respects, Orosur’s strategy remains unaffected.
The new Board is working well and is committed to our strategy. We have recently appointed a new member, Eric Roth, a highly experienced geologist. The Board is redirecting and refocusing the management team to deliver the results shareholders have the right to expect. We appreciate that the patience and confidence of shareholders with the Company has been tried. However, we believe that change is now firmly in hand.”
- A major asset in the form of the gold producing mine and mill at San Gregorio in Uruguay
- Exploration assets in Uruguay and the north of Chile at Anillo, Pantanillo, and Talca, and
- Interests in non-gold projects which it has either already farmed-out or could farm-out
During the last year, the management team has achieved its production target, completed the first phase of the new Tailings 2 storage facility, made good progress on closing and rehabilitating the old tailings facility, taken Arenal Deeps (the first mechanised underground mine in Uruguay) into production and continued with exploration in Uruguay and Chile, including the completion of a successful Preliminary Economic Assessment at Pantanillo, whilst also looking at many potential acquisitions in Latin America. This stretched the Company’s resources and the operating and capital costs have been higher than expected.
We plan for 2012/13 to be a year of consolidation. We have introduced changes to the management and the Board, are controlling our costs, and are refocusing the Company’s management and resources on delivering results from San Gregorio and on extending the mine life, whilst advancing our existing Chilean projects. We are forecasting production for the 2012/2013 fiscal year of 63,000 to 68,000 ounces at an operating cash cost of approximately US$ 975 per ounce.
To ensure a mine plan that maximises production at a time when gold prices are expected to be strong and to provide better flexibility over the next three years the Board is considering accelerating the development of San Gregorio into January- May 2013, once the ramp at Arenal Deeps is finished. To complete our capital expenditure programs in 2012/13 (mainly Arenal Deeps and San Gregorio) will require a higher investment and therefore our cash balance at 31st May 2013 will not be as much as previously expected. Thereafter we expect that we will generate significant operating cash with lower levels of capital expenditure during the three years to 31 May 2016.
As explained in our statement of results for the first quarter ended on 31st August 2012 the Uruguayan Government is discussing a draft for a new law to regulate major mining operations which includes changes to taxation and regulation. At this stage Orosur is unable to determine the impact of these changes and our strategy will be refined as appropriate once the final position is established. Orosur, through the Chamber of Mining in Uruguay, will be making submissions to the Uruguayan Government regarding the potential impact of changes to future investment decisions.
2. Our objectives
The Board and the management team have set the following objectives:
i. To maximise our free cash flow in the three years to 31 May 2016. We will do this by targeting San Gregorio production at between 60,000 to 70,000 ounces per annum from our existing reserves at an average cash cost of US $810 per ounce. Based on gold prices of US$1,600 per ounce for the 2012/13 fiscal year and US$ 1,500 per ounce for the following years and, after corporate costs, taxation, capital and exploration expenditure, and full repayment of all debt, this has the potential to generate significant free cash flow within the business to fill the Company’s stated goals as detailed below;
ii. To the extent available, pay dividends to shareholders of at least one-third of our free cash flow. It would have been our intention to start with a dividend in June 2013, and thereafter pay dividends every 6 months, but in order to accelerate the capital expenditure in San Gregorio we will have to postpone this for 6 months to January 2014;
iii. To carry out sufficient work to extend the life of the San Gregorio mine to maintain a minimum three years of life, although there is no guarantee that we will be able to do this. The mine has had a three to five year mine life for the last 15 years: in management's opinion, if we are able to extend the life for more than three years this would significantly enhance the value of Orosur;
iv. To advance our existing projects at Anillo, Pantanillo and Talca in Chile to commercial assessment;
v. To monitor the progress of our farmed-out projects to obtain the maximum value from them; and
vi. To have sufficient cash on our balance sheet and to be generating cash so that when, as we expect, the difficult market for funding exploration projects results in their prices reducing to a reasonable level, we are in a position to acquire new projects in South America that have real potential and low risks at realistic prices. If we do not find the right projects, then there will be additional cash that can be returned to shareholders.
In summary, our objective is, subject to the level of the gold price, to generate significant free cash flow over the period to 31 May 2016. We expect that we would be able to pay dividends of at least one third of this, and would set aside the balance for the development of our existing projects in Chile and to build up our cash resources so, when appropriate, we have the capability to acquire a low risk/high reward project in South America should prices reduce to a sensible level. If we are unable to find any appropriate projects and/or our projects in Chile do not demonstrate sufficient economic potential, then we anticipate paying a larger proportion of free cash as dividends to shareholders.
3. Our strategy
i. The Company’s first priority is to operate the San Gregorio mine to maximise cash flow.
a. San Gregorio is a challenging mine to operate as the project has low ore grades, has a relatively short mine life, and the grades can vary significantly on a quarterly basis. Accordingly, management has to juggle ore and grade, and production is subject to disruption by ore of a lower grade than expected. This requires the management to be very focused. In the last year the mine has suffered from lack of management focus, and as a result we have experienced delays in production (at Arenal Deeps) and cost over-runs (at Arenal Deeps and on building the new tailings dam). Management’s first priority is to achieve budget production and costs for 2012/2013, and to provide the maximum cash flow in the three years thereafter to 31 May 2016.
b. It is key that the ramp at Arenal Deeps is completed during the third quarter of fiscal 2012/2103, and we are on course to do that. This is important as it opens up transverse stopes which are expected to be higher grade and lower cost, and significantly reduces capital expenditure. Existing production is coming from the lower grade room and pillar stopes. A description of the ramp can be found on the Company’s http://www.orosur.ca/media/download_library/
ii. The Company’s second priority is to continue to search for, and find, additional gold reserves in Uruguay with a view to attempting to maintain and extend the life of San Gregorio. If a substantial discovery occurs this can add significant value to the Company.
a. This will be achieved by means of a multi-disciplinary process where an exploration team will be responsible for defining resources, a development team will evaluate the feasibility of projects to define the resources, and the CEO will provide oversight to ensure that potential deposits are appropriately prioritised, and that progress is tracked through to production.
b. There are a number of promising exploration targets which we are prioritising, and advancing.
iii. Our third priority is to advance and complete the commercial assessment of our exploration assets in the north of Chile at Anillo, and Pantanillo (which were acquired in 2010 through the purchase of Fortune Valley) and Talca.
a. We expect to spend US$ 4 million on assessing the potential of these projects in 2012/13; thereafter the amount we spend will depend on our assessment of their potential.
b. The Anillo project is located between and adjacent to Yamana’s El Peñon mine (450,000 gold equivalent ounces of annual production at US$ 400 per ounce of gold) and Pampa Augusta Victoria discovery. The prospective corridor for low temperature epithermal mineralization is believed to continue to the north from the El Peñon mine through Orosur tenements, and then trends diagonally across the Pampa Augusta Victoria permit into the eastern extent of the La Lengua zone (again into Orosur tenements). Limited previous drilling has been completed on the tenements. We are planning additional mapping, sampling and geophysics before trenching and drilling in the second half of fiscal 2012/2013.
c. Our Preliminary Economic Assessment of the Pantanillo project has demonstrated the potential for the project to develop into a production asset with a Net Present Value before income tax of US$ 50 million (at an 8% discount rate): This is half our objective of US$ 100 million and we are targeting a minimum after tax return of 15%. Subsequent drilling has confirmed the potential for additional oxide resources, and we believe that by spending in a disciplined, staged approach we can define the resources necessary to develop a project.
d. The Talca project is currently under review.
iv. In recent years, the Company has devoted significant management time and cost into looking at exploration projects in South America as potential acquisition targets. These activities have ceased until such time as San Gregorio is back on track, and the commercial assessments of the exploration projects in the north of Chile have been completed.
v. The Company has minority interests in a number of projects that it has farmed out in Uruguay. For example Orosur has a free carried interest in the iron ore and base metals prospects in the Isla Cristalina Belt that has been farmed out to Gladiator Resources Ltd, and we are also looking for a joint venture partner for the Lascano project. Each of these minority interests has the potential, with time, to deliver significant value. We will continue to monitor these projects to see what value we can achieve for shareholders.
4. Our people
The senior management of the business (Chief Executive, Chief Financial Officer, and Head of Exploration) and the corporate office are based in Santiago, Chile. The mine and mill are at San Gregorio in northern Uruguay. There is an administrative office in Montevideo, Uruguay, and an exploration office at Copiapo, Chile.
The management team members are:
- Chief Executive Officer, David Fowler
- Chief Financial Officer, Ignacio Salazar
- General Manager, Exploration, Walter Muehlebach
- General Manager, San Gregorio, Juan Lacerda
- Company Secretary and Legal Counsel, Patricia Rodriguez
Luis Tondo, the Chief Operating Officer, has left the Company and will not be replaced.
Please contact either Tony Shearer, Chairman, at firstname.lastname@example.org or David Fowler, Chief Executive Officer, at email@example.com should shareholders wish to discuss any aspect of this letter in further detail. The next Annual General Meeting of the Company is in London on 28th November, 2012.
Finally, the Board thanks shareholders for their continuing support, which is very much appreciated. We are absolutely focused on ensuring that the Company delivers on their expectations.
On behalf of the Board of Orosur Mining Inc
Forward Looking Statements
All statements, other than statements of historical fact, contained or incorporated by reference in this news release, including any information as to the future financial or operating performance of the Company, constitute “forward-looking statements” within the meaning of certain securities laws, including the “safe harbour” provisions of the Securities Act (Ontario) and the United States Private Securities Litigation Reform Act of 1995 and are based on expectations estimates and projections as of the date of this news release. There can be no assurance that such statements will prove to be accurate, such statements are subject to significant risks and uncertainties, and actual results and future events could differ materially from those anticipated in such statements. Forward-looking statements include, without limitation success of exploration activities; permitting time lines; the failure of plant; equipment or processes to operate as anticipated; accidents; labour disputes; requirements for additional capital title disputes or claims and limitations on insurance coverage. The Company disclaims any intention or obligation to update or revise any forward looking statements whether as a result of new information, future events and such forward-looking statements, except to the extent required by applicable law.
About Orosur Mining Inc.
Orosur Mining Inc. is a fully integrated gold producer and exploration company focused on identifying and developing gold projects in Latin America. The Company operates the only producing gold mine in Uruguay (San Gregorio), and has assembled an exploration portfolio of high quality assets in Uruguay and Chile. The Company is quoted in Canada (TSX: OMI) and London (AIM: OMI).
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