Orinoco Gold (OGX) EQUITY markets remain pretty much off limits...

Orinoco Gold (OGX)

EQUITY markets remain pretty much off limits for the junior miners in search of fresh funding. But doors are opening elsewhere, at least for those with a near-term chance of getting in to production with a (free) cashflow producing opportunity.

Private equity is proving a useful alternative. There is no avalanche out there but PE in its many forms — vanilla equity, royalty streams, direct project participation and project financing — is definitely more active than it was.

It seems that in a world of super low interest rates and low growth expectations, the appeal of picking up a potential 10-bagger from among the juniors is as great as it ever was.

ASX-listed Brazilian gold developer Orinoco Gold is a case in point. Because of the coarse nature of the gold at its Cascavel project in Goias state, it could never sensibly drill out a resource/reserve on which it could raise development funding.

"" style="box-sizing: border-box; width: 300px; height: 250px; border: 0px; vertical-align: bottom;">

The sensible thing to do was to drill to confirm a big gold-bearing quartz structure (which it has done), and then start mining the stuff. Suck and see, if you like.

Because of the high-grade nature of the mineralisation — based on some previous scratchings and underground sampling of the narrow vein deposit returning results like 15m at close to three ounces a tonne — Orinoco plans to start out with a small 40,000-tonne-a-year operation that will cost all of $US6.6 million to get going.

Assuming all goes well, the operation would then be expanded. It will be the actual mining and processing (by gravity separation) that will tell us all what the annual production potential is.

Potentially exciting for a company trading yesterday at 6.8c for a market cap of about $11m. But again, not the sort of thing that the equity market here is inclined to finance, while it has got the sooks up on commodity prices in general, and while no reserve estimate can be made.

Orinoco’s solution was to strike an $US8m gold sharing arrangement with Chancery Asset Management out of Singapore. Essentially Chancery will receive a minimum of 16,000 ounces of gold from the Cascavel project over three years, or however long it takes.

So Chancery is effectively buying gold at $US500 an ounce, and Orinoco gets its funding. If the grade at Cascavel comes in as special as hoped, meeting the 16,000-ounce commitment will be a snack.