Orinoco Gold – (ASX: OGX, Share Price: $0.11, Market Cap: $117m, coverage initiated @ $0.105 in Sep 2015 – current gain of 5%)
Key Catalyst
Completion of successful $12M capital raising and additional high-grade panel sample assay results from Cascavel mine in Brazil.
OGX possesses a potentially lucrative, high-grade gold mine in Brazil, which was the basis for our initial coverage back in late 2015. Unfortunately, there were immediate commissioning issues related to the inability to provide enough high-quality ore to the processing plant due to the nuggety nature of Cascavel ore. This meant that production had to be halted whilst potential solutions were sought and implemented.
Encouragingly, there have been strong recent advances in terms of project recommissioning, which have had a significant impact in terms of regaining market confidence and hence an improved share price. Both the Central and Mestre developments have advanced strongly, whilst throughput rates have been above plant nameplate capacity and there has been an increase in overall recoveries of fine gold.
Latest Activity
$12M Capital Raising
OGX has raised $12.1m via the placement of 115,891,876 shares, accompanied by free listed options on a 1-for-3 basis exercisable at $0.11 by 31 January 2020. The raising comprises $8.5m of new monies and $3.6m in lieu of the US$2.85m payment due to the Cascavel joint venture partners. The new shares will be allotted at an issue price of $0.12 each for new monies and at a VWAP price of $0.06 each for the joint venture partners’ US$1.35m to be paid in shares.
Part of the placement was taken up by OGX’s 30% joint venture partners in lieu of a 3rd payment of US$2.85m (payable via US$1.35m in shares and US$1.5m in cash) due on 1 September 2018. The shares issuable to the joint venture partners will be held in escrow until 1 September 2018. New shares issued to the Cascavel joint venture partners comprised 16,164,492 new shares at $0.12 each and 28,931,051 new shares at the VWAP calculated in accordance with the Minority Partners Purchase Agreement.
The placement was strongly supported by both new and existing shareholders, with a number of quality, sophisticated investors joining the register.
Technical Significance
A key near-term focus will be the ongoing ramp up of production at the Cascavel gold mine, with commissioning of the Hammer Mill 3 according to plan. Part of the new capital from this raise will be focused on increasing underground development by way of the purchase of more haulage and drilling equipment.
In conjunction, OGX will restart a long overdue focus back on exploration. Drilling is already underway at Antena, which sits to the south of Cascavel. Pit sampling from Eliseo is continuing and results from six pits will be announced shortly. Drilling will also commence at Cascavel, Sertão and Tintiero during Q2 2018 as part of a $3m drilling program. A rock chip sampling program is currently underway at Tintiero with a focus to test the cobalt mineralogy that was identified from rock chip samples taken back in 2012.
Underground Panel Sampling
Results have been released from the extensive panel sampling program along the Cuca vein, which is accessed via the historic Cuca development. Cuca mineralized veins form part of the same mineralized system that contains the Cascavel and Mestre mineralized veins.
Bonanza grades from Cuca’s second batch of 38 panel samples include 134.0 g/t, 184.5 g/t, 212 g/t, 222.0 g/t and 300 g/t. This follows on from Cuca’s first batch of 35 samples reported on 27th February 2018 that averaged 31.7 g/t and included grades of 73.6 g/t, 102 g/t, 105 g/t and 212 g/t. The average grade over both batches is 40.9 g/t and the vein is continuous along the historic workings and shows thicknesses up to 50 cm.
Technical Significance
The results further confirm the potential high-grade nature of the Cascavel-Mestre-Cuca mineralized system and supports potential for near term production at Cuca as part of the Cascavel ramp-up. Underground and surface drilling will start next month to test the continuity of the system along strike and down plunge.
The Cuca old shaft is located just 350m to the north of the Cascavel Mine portal and was part of the same mining complex opened by the Portuguese settlers around 1720. Other shafts and old workings can be observed in the field between the Cascavel and Cuca entrances showing a continuous mineralized horizon at the surface, suggesting the Cuca zone is present in the area between the Cuca shaft and the Cascavel development.
Summary
With a strengthened balance sheet and lower cost base, Orinoco has now established a very robust platform to aggressively pursue its planned gold production ramp-up and exploration program over the coming months. Additionally, OGX will now take 100% of all gold production from now on.
The latest Cuca panel sample results further increased confidence that the Cuca-Cascavel-Mestre system represents a potentially very high-grade mineralized system, open in all directions and characterized by several high-grade mineralized veins. All geological indications suggest this system is extensive and will support the expansion plans being developed for the mine. The next step will be confirmation of the continuity and extent of the system by way of the planned drilling program.
