Ann: Scoping Study Confirms Potential of Nyanzaga & MRE Upgrade-ORR.AX, page-96

I’ve previously mentioned that I believe most gold producers are not valued by the market by their NPV of future cash flow based on known reserves. Most seem to trade well above any NPV calculation. That may be due to an expectation for higher gold prices and/or future additions to reserves, acquisitions etc.
RRL is one example. They presented their 2016 results 2 weeks ago. Below are comparisons of RRL’s 2016 results and ORR’s numbers based on the scoping study currently being optimised in the pre-feasibility study. I assume RRL’s costs are in AUD (I didn’t see any notes clarifying that). If in AUD then forecast costs are similar to ORR’s.
  RRL 2016 actual ORR scoping study
Gold oz’s 305k (300-330k/340-370k 2017/18 forecast) 220k (first 5 years ave)
AISC $927/oz with $980-1050 2017 forecast (US$735-787)  $798
Reserves 2.13Moz (around 6 years prod on current res.)    2.3Moz M&I in mine plan - 1.2Moz Open Pit + 1.1M oz ug (13years)
Strip ratio   4.89 (open pit)    2.5 (open pit)
Head Grade    1g/t    1.8g/t (open pit grade, 1^st 5 years)  
Market cap $2bill.    $100Mill

ORR has 10% more gold in its mine plan than RRL has in current reserves (although I fully expect RRL to add to reserves – and hopefully same for ORR). RRLs’ higher production rates keep mine life to around 6 years on known reserves compared to 13 year mine life for ORR. RRL planning on roughly 340koz/yr for 2017-2018 compared to around 220k for ORR. ORR has half the strip ratio on open pit at 80% better grade.
Comparing the above and based on ORR at 100% ownership, the market could also value ORR at around $2bill based on forecast gold production and costs (when de-risked in production). Or perhaps at $1.3 bill if only comparing the annual forecast production of ORR relative to RRL’s ave forecast production for 2017 and 2018. The $1.3 bill based on lower annual production could be adjusted higher based on the longer mine life for ORR. $1.6bill might be more appropriate. This would be one way to project a target for when ORR is in production. Worst case is 25% ownership and close to fully funded to production. At 25%, the target would be $400mill or 4 times the current market cap/share price. At 50% ownership and allowing a 50% increase of shares on issue for funding (balance through debt), the target might be 6 times the current sp. At 100% ownership, the target would be higher again and dependent on dilution assumptions. All this based on how the market currently values producers like RRL.

Current time line chart still shows pre-FS beginning Jan 2017 and ending late 2017 with FS beginning same time. They have now updated that to first qtr 2017. FS had an allowed timeframe of just over 12 months but if that is reduced as well and with the start date now brought forward to early 2017 then it might now be completed by end 2017 instead of end 2018. We are much closer to production than what we were talking about a couple of months ago.