SPEC BUYCurrent PriceValuation$0.56$1.20Financial Advisers |...

SPEC BUY
Current Price
Valuation
$0.56
$1.20
Financial Advisers | Stockbroking & Research | Special Situations Financing
www.argonaut.com +61 8 9224 6888
EQUITY RESEARCH
Tuesday, 24 May 2022
OreCorp (ORR)
Nyanzaga Site Visit
Analyst | Royce Haese
Quick Read
Earlier this month Argonaut attended a site visit to OreCorp’s Nyanzaga project in
Tanzania. DFS progress, site access, project geology and exploration upside were
key discussion points. Nyanzaga hill is a striking geographic feature, three million
ounces literally sticking out of the ground. Cost inflation remains the key risk to
the project, as is the case for most developers. The scale and quality of this project
gives OreCorp a competitive advantage over most peers in our view, hence we
maintain our speculative buy recommendation with a $1.20 valuation.
Nyanzaga Site Visit
Project Status: Despite the bulk of the study work occurring offsite, status of the
DFS was a central discussion point during the site visit. As outlined in our previous
note, COVID-19 related disruptions and skills shortages have resulted in a delay
to the Nyanzaga DFS, now scheduled for release Q3 this year. Cost escalations are
also likely to factor into the study. The 2017 PFS projected +200kozpa over 12
years at a forecast AISC US$838/oz with pre-production capex of US$287M. We
are expecting increase beyond the 2017 PFS numbers to both capex and opex.
Cost escalations are near ubiquitous industry wide, however, the gold
endowment of the Nyanzaga project will allow OreCorp the ability to design to
maintain a strong margin. We therefore think that OreCorp is better positioned
than most to develop a new, profitable, gold project. Cost increases are likely to
be at least partially offset by adjustments to the mine plan so we’re holding steady
on our model mining assumptions and valuation until we have more clarity here.
Project Geology: Existing endowment and controls on mineralisation are well
understood by company geologists. Regionally, the surface is barely scratched.
Unlike the majority fresh-rock Nyanzaga, the satellite deposit Kilimani estimate is
around 95% oxide material. Potential for high-grade shoots at depth remain at
Kilimani, and the gap between Nyanzaga and Kilimani is poorly tested due to the
historical focus on Nyanzaga itself. Longer term regional potential remains, as
does depth potential at Nyanzaga once more economical exploration is afforded
by drilling from underground development.
Recommendation
The site visit reinforced our view that OreCorp’s Nyanzaga project is a future
large-scale gold producer being developed to industry best-practice standards.
Maintain Spec Buy