TGR: The Orvana assets have bounced around from a few different companies. What makes you think that Orvana has figured it out?
CD: EVBC has been operated by Rio Narcea Gold Mines Ltd. and others. It was shut down primarily due to metals prices. It's not as if Orvana has a magic formula here. The mine was acquired by Kinbauri Gold Corp. The company's drilling showed that there were more resources there in addition to what was left behind. Orvana came in, bought it for cash and then put it back into production. It was not a very smooth startup. The company went through a couple of mine managers in the process. Ground conditions ended up being much more challenging than anticipated. That took time and money. That's why the shares were moribund for quite some time. But on an operating basis, Orvana's management seems to have hit its stride. In the last year, the company put in a new shaft, which has dramatically increased the number of tonnes that can ultimately be pulled out of it on a daily basis, and reduced the cost per tonne. It spent a lot of money sinking that shaft and putting in the hoist, but it is now paying off and you can see that in the last couple of quarters that the operations have really turned around after the shaft came on-line.
TGR: I understand you have a sell story. Tell us about it.
CD: San Gold Corp. (SGR:TSX.V) is the only Underperform in my universe right now. It has the Rice Lake mine in Manitoba. The operation has just struggled and absolutely failed to deliver on the expectations company management set for the project. The capex budget that came out back in February was for me the death of this story. It showed that there is no free cash flow for at least a couple of years to come. It's just going to be a money pit. In fact that was the title of my note. Shares are trading around $0.25/share. I have an underperform rating on the stock. My $0.30 price target was set when the stock was at $0.50, so on paper it might not look to be a Sell right now, but I have a lot of fear here.
These guys just did a $50M convert, which will fund capital development. It's a Hail Mary pass. If management is successful using this $50M, it might in three years start generating free cash flow again in significant amounts. The $50M convert was the last kick at the can.
TGR: Do you have any other companies you want to talk about?
CD: Why don't I suggest the Canadian name that I think you should own instead of San Gold, which is St Andrew Goldfields Ltd. (SAS:TSX). The company is in the Timmins Camp. I had a Hold on it for quite some time and then I went to a Buy last fall. The company delivered three quarters in a row of free cash flow so it is adding to the treasury. St Andrew Goldfields also had some recent sexy exploration success beneath the Hislop pit. It's only one hole so it doesn't prove anything yet. But if it pulls a few more of those, it will start to define a high-grade ore zone. It's run by Jacques Perron who is a great operator. As much as it struggled in 2011, St Andrew Goldfields turned itself around in 2012 and it's very well positioned for 2013. I have an $0.80 target and the stock is currently trading at around $0.45/share.
TGR: Thank you, Christos, for your insights
CD: Thank you.
Christos Doulis, before joining Stonecap Securities as a mining analyst in September 2010, spent 16 years in a wide variety of roles with a focus on the global mining sector. Most recently, Doulis was a partner at Gryphon Partners, a diversified global corporate advisory consultancy specializing in mining and resource company mandates. From 2006 to 2008, Doulis was a vice president in the Mining Investment Banking group at Blackmont Capital. Doulis began his professional career in 1994 with Scotia Capital as an equity research associate.
1) Brian Sylvester conducted this interview for The Gold Report and provides services to The Gold Reportas an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Premier Gold Mines Ltd., Franco-Nevada Corp., Argonaut Gold Inc., Orvana Minerals Corp. and St Andrew Goldfields Ltd. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Christos Doulis: I or my family own shares of the following companies mentioned in this interview: None. I personally or my family am paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Premier Royalty Inc., St Andrew Goldfields Ltd., Orvana Minerals Corp. and San Gold Corp. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.