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RISK/REWARD RESEARCH
NXTanalytics Risk/Reward Research - BUY | June 18th, 2019 - www.nxtanalytic.com
TSXV: OSU
RISK/REWARD RESEARCH
Orsu Metals Corp.TSXV:OSU BUYMOMENTUM BIAS: AGGRESSIVE
2 NXTanalytics Risk/Reward Research - BUY | June 18th, 2019 - www.nxtanalytic.com
RISK/REWARD RESEARCHNXTanalytic considers corporate performance risks and rewards based on potential value drivers and competitive advantages, uncovering the most compelling value advantages for investors.
ORSU METALS CORP. AND THE SERGEEVSKOYE PROJECT Orsu Metals Corporation is a mineral exploration and develop-ment company. The company is developing the Sergeevskoe Gold Project in the Mogocha district of the Russian Federa-tion’s Zabaikalskiy region, where it owns 90% of the equity. The property covers an area of 7.6 square kilometers, where numerous gold deposits were discovered in the 1950s and 1960s. Orsu acquired Sergeevskoe in May 2017 and has been exploring the property for the past two years. To date the company has spent around $4.5 million to complete 17,500 meters of diamond drilling as well as some 5,000 meters of trenching and related geophysical work. In the first quarter of 2019, Orsu completed its first gold resource estimate of 25.09 million tonnes of ore at a grade of 1.47 g/t gold (or about 1.2 million oz. of gold constrained within the pit). The company anticipates preparation of a preliminary economic assess-ment will be completed by the end of May or early June 2019. Orsu plans to begin further exploration in summer 2019.
Country of Listing:
Ticker Symbol:
Industrial Sector:
Rating:
Momentum Bias:
M&A Opportunties
Strategic Location
Experienced Management
Low Cost & Hig return Project
Analyst: Alessandro Bruno ([email protected])
Canada
TSXV:OSU
Gold Metals & Mining
BUY
Agressive
WHY BUY ORSU?After a detailed risk/reward analysis, it’s our opinion that Orsu Metals represents a Buy opportunity with an Aggressive momen-tum bias in the junior mining sector. Given the geology of the potential 3.0 million oz. resource, its strategic location and expe-rienced management, we believe Orsu’s Sergeevskoe Project is likely to achieve profitable production by 2021. Orsu plans to resume exploration and issue a prelim-inary economic assessment (PEA) in June 2019, to better define the mineralization and project economics.
Significantly, we note that Orsu is in a good position to begin generating revenue from semi-commercial production by the first or second quarter 2020, enabling it to finance its next exploration phases. To this effect, Orsu has begun talks with a neighboring mine/mill to process its ore, taking ad-vantage of the latter’s spare capacity. We believe this is a significant catalyst that will allow the company to de-risk the project, leading it to full production without signifi-cantly diluting its capital structure.
Finally, we also believe that Orsu Metals presents an attractive takeover target based on its resource potential and its proximity to the substantial China National Gold mine, which shares the same geologi-cal system.
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RISK/REWARD RESEARCHRISK/REWARDS AT A GLANCEREWARDSM&A Opportunities: Orsu Metals’ Sergeevskoe project borders two large and active gold mines. We believe this creates interesting M&A opportunities.
Near Term Production: Subject to agreements, Orsu plans to use a neighboring gold mine’s processing plant to process ore on a small scale to begin generating free cash flow by Q1-Q2 in 2020, sufficient to cover the entire exploration work.
Experienced Management: Russian managers and geologists have significant experience and proven track records, and a deep understanding of Russian geological and regulatory environments particularly in the Russian mining jurisdiction of Zabaikalskiy Krai.
Excellent Mineralization: Orsu has discovered excellent gold mineralization, announcing a maiden resource estimate of 25.09 million tonnes of ore at a grade of 1.47 g/t gold (or about 1.2 million oz. of gold within the conceptual pit). Management believes the property could contain as much as 3.0 million ounces of gold based on the geological system. A summer 2019 exploration program aims to identify areas of higher grade mineralization.
Location:The region has significant existing infrastructure, including excellent tele-communications and access to the Trans-Siberian Railway (35km away) and a main highway (8.0 km). It’s also located just 100 km away from China (the world’s biggest gold buyer).
Capital Costs: Low valued Russian Ruble reduces costs. And Russia is already among the cheapest mining jurisdictions in the world.
TOTAL REWARDS SCORE (BEST FOUR): 59
RISKSRussia Risk: Orsu Metals’ Sergeevskoe Project is based in Russia and this adds risk from so-called ‘Russiagate’ allegations in the context of intense media and political coverage. Negative portrayal of Russia risk could detract investor attention from Orsu.
Grade: The current 1.47 g/t is not as high as Orsu’s expectations of 3.0 g/t. A completed PEA and further exploration are needed to establish Orsu’s full potential.
Financing and Capital: In the past two years, (since 2017), Orsu has spent about $4.5 million on operations. Although a lack of capital has not yet become a critical threat, Orsu is planning a new exploration campaign, which will consume funds.
Project/System Geology: Geological risk posed by the potential presence of refractory ores in the system could cause capital and operating costs to increase.
Gold Price Fluctuations: No matter how promising the project economics, junior gold mining companies like Orsu are subject to the vagaries of the stock and gold markets.
Development Risk: There are many risks related to geology, financing, geopolitical issues, resource prices and markets which could delay the project, or make it unprofitable to continue.
Metallurgy & Engineering: As is the case with any gold exploration project, metallurgy & engineering problems could arise, which can increase costs.
TOTAL RISK SCORE (WORST FOUR): 25
NXTANALYTIC RATING COEFFICIENT: 2.36
SCORE: 14
SCORE: 13
SCORE: 16
SCORE: 12
SCORE: 16
SCORE: 12
SCORE: 9
SCORE: 5
SCORE: 4
SCORE: 4
SCORE: 4
SCORE: 3
SCORE: 7
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RISK/REWARD RESEARCH
NXTanalytics Risk/Reward Research - BUY | June 18th, 2019 - www.nxtanalytic.com
REWARDSFavorable M&A Prospects: Orsu Metals’ Sergeevskoye project is next to a larger mine Klyuchevskoe
owned by China National Gold Company (CNGC) that is just about ready to begin production within next
1-2 years. This raises favorable M&A scenarios. A quality project - both in terms of the mineralization
potential of the geological system and location such as the Sergeevskoye, is rare; therefore, we
expect that it could attract M&A interest. CNGC has committed to invest some US$420 million in the
development of the Klyuchevskoye gold deposit in Russia, a 5.5Moz system that shares a license border
with Orsu Metals.
Near-Term Production: Orsu managers are considering pursuing one of the two following possible
scenarios to bring the Project to production stage in 2019: The first involves a direct exploitation of the
project’s location, sandwiched between an emerging (China National Gold) and an actively producing
Alexandrovskaya gold mine. Accordingly, Orsu would process the ore at a neighboring Alaxandrovskaya
gold plant, potentially generating some $7.0-8.0 million in annual revenue starting in Q1 or Q2 2020.
Orsu managers have indicated that they have already started related discussions. The viability of this
option is subject to permitting reviews and bulk tests of mineralized material. The second option would
be to launch a small size heap-leach operation, which could take about 18-24 months to achieve. Either
one of these processes would enable Orsu to generate sufficient funds to pursue its larger exploration
goals thereby reducing the need to raise capital or, more importantly, diluting the stock significantly by
issuing shares.
REWARDS VS. RISKS
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RISK/REWARD RESEARCH
NXTanalytics Risk/Reward Research - BUY | June 18th, 2019 - www.nxtanalytic.com
Experienced Local and International Managers: The Orsu Project includes a combination of local
managers and geologists, who understand and know how to navigate through the Russian regulatory
and geological environments. This is an additional de-risking element that cannot be overlooked. Dr.
Alexander Yakubchuk, the director of exploration, has worked on mining projects throughout territories
of the Former Soviet Union (Russia, Kazakhstan, Kyrgyzstan) and has consulted for multinationals such
as BHP Billiton and Goldcorp. Sergei Stefanovich, the managing director, has several years of experience
in corporate finance, strategy and public equity mining funds. Orsu Metals founder, Dr. Sergey Kurzin
(a nuclear scientist) was involved in creating UrAsia Energy - now part of Uranium One, itself owned by
Rosatom - and, among other projects, in Oriel Resources, a non-ferrous metal specialist miner, which he
sold for $1.8 billion in 2007. In addition, Orsu’s Canadian operations team have extensive North American
capital markets experience.
Excellent Mineralization: Orsu has discovered excellent gold mineralization, announcing a maiden
resource estimate of 25.09 million tonnes of ore at a grade of 1.47 g/t gold (or about 1.19 million oz. of
gold). But, Orsu believes that the Sergeevskoe could become a much larger deposit. The forthcoming
exploration campaign will target higher grade areas in hopes of doubling the average gold grade of
the system to achieve 3.0 g/t - or about 3.0 million ounces in potential gold production. Evidence from
adjacent properties suggests a 3.0 g/t grade exists in the geological system. Based on early assessments,
Orsu has estimated exploration costs are between $2 to $3 per ounce. Moreover, initial metallurgical
tests have achieved up to 95% recoveries of gold from oxide material and up to 89% of gold from primary
sulphide material.
(Fig. 1: cross section (looking west) showing grade distribution in
gold-mineralized stockwork over a >500 m width along the eastern
license boundary of the Sergeevskoe gold project.
(Source: Orsu Metals Corp.)
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RISK/REWARD RESEARCH
NXTanalytics Risk/Reward Research - BUY | June 18th, 2019 - www.nxtanalytic.com
Location: The project is ideally situated in an historic gold producing system with a 10 million-ounce
capacity, sharing license borders with two large operating gold mines. The region has all the necessary
infrastructure, including excellent tele-communications and access to the Trans-Siberian Railway
(35km away) and a main highway (8.0 km) , located just 100 km away from China (the world’s biggest
gold buyer). Why is this a ‘reward’? Consider the reverse situation: gold miners, which have focused on
projects in remote or less developed jurisdictions have ended up having to invest in building roads,
hospitals, schools and other infrastructure. As a result, their costs have risen faster than has the price of
gold. Orsu does not face such risks.
(Fig. 2: Plan view of Mineral Resource and gold grade distribution model at Sergeevskoe. Historically recognized mineralization is shown in grey-blue.
The neighboring Klyuchevskoe open pit mine can be seen to the east.
(Source: Orsu Metals Corp.)
(Fig. 3 Long vertical projection showing grade dis-tribution with resource pit outlines constrained by Sergeevskoe license boundary as well as pit out-line unconstrained by license boundary. The ex-isting open pit at the adjacent Klyuchevskoe gold deposit is shown for reference. (Source: Orsu Metals Corp.)
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RISK/REWARD RESEARCH
NXTanalytics Risk/Reward Research - BUY | June 18th, 2019 - www.nxtanalytic.com
Capital Costs: Russia has some of the lowest mining CAPEX, OPEX, fuel, power and labor costs in the
world. The government also offers fiscal support. In addition, the low value of the Ruble, compared to
the U.S. Dollar, further reduces costs. It’s a rare case where country risk and sanctions have provided
significant advantages. Orsu says that its production costs should be fully in line with those of other
Russian gold producers, which are among the lowest of any jurisdiction, as this 2017 study shows
(Source: Mining Intelligence).
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RISK/REWARD RESEARCH
NXTanalytics Risk/Reward Research - BUY | June 18th, 2019 - www.nxtanalytic.com
MACRO-LEVEL ADVANTAGESRussian Gold Rush:: Russia has become one of the friendliest jurisdictions for gold mining. Simply
put, Russia wants to double gold production – and Russia is already the third largest producer behind
Australia and China. The goal is to become the second largest gold producing country within two
decades. This means gold projects in Russia will benefit, as the government will encourage and facilitate
discovery and development of new gold deposits. Moreover, China wants to develop gold mines in the
Russian Far East making Orsu a candidate for M&A activity. China wants to advance its One Belt - One
Road strategy, aka: the New Silk Road, including development of physical and economic infrastructure
for mining..
RISKSGeopolitics and Investor Perspective on Russia Risk: While Orsu Metals is listed in the Toronto Venture
Exchange, the world’s premier mining focused stock exchange, the fact that its Sergeevskoe Project is
physically based in Russia adds political risk. Mainstream media and politicians in the United States are
using Russia, and the so-called Russiagate scandal, as a political football and a key issue in the 2020
Presidential campaign. Perceptions of Russia risk, therefore, could cause investors to shy away from
Orsu.
Grade Risks: Orsu geologists believe they have a high probability of increasing the average grade of
the resource from the current 1.47 g/t. to 3.0 g/t but, further drilling will be necessary. Geologically, the
company sees few obstacles to achieving the higher grade. However, grade alone does not determine the
viability of a project. Grade must be considered in relation to the tonnage, the depth and the geometry of
the mineralization. Therefore, as promising as the grade may be, a preliminary economic assessment will
be necessary to determine if the project can become profitable.
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RISK/REWARD RESEARCH
NXTanalytics Risk/Reward Research - BUY | June 18th, 2019 - www.nxtanalytic.com
Financing and Capital Reserves: Orsu has about $1.5 million in the bank, which the company believes will
be sufficient to finance the forthcoming 3,500 meter drilling program. But, Orsu may have to consider raising
capital - including diluting its stock to pursue the project beyond 2019 - should it fail to reach an agreement to
process ore at the neighboring mine.
Project Risk: There is geological risk posed by the potential presence of refractory ores. The
Sergeevskoye project shares geology with the adjacent open pit Klyuchevskoye gold mine, which
temporarily shut down operations after encountering some refractory ores 20 years ago. Refractory ores
increase development costs. Today, thanks to technological advances, processing refractory ores has
become cheaper, but it still poses a metallurgical, and therefore financial, risk to the Project.
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RISK/REWARD RESEARCH
NXTanalytics Risk/Reward Research - BUY | June 18th, 2019 - www.nxtanalytic.com
MACRO-LEVEL RISKSMarkets a Key Determinant of Risks/Opportunities: These are always a threat to junior resource companies
such as Orsu. Risks include the effect of commodity, and stock, markets on the company’s ability to raise funds,
regardless of the quality of mineralization or project economics.
Unforeseen Development and Engineering Issues: Gold exploration projects are subject to a number of risks
that can increase costs and render a project unfeasible in the long term, even when the mineralization grades
are higher than average. Cost estimates may be low at the stage of a PEA (which Orsu is set to complete in the
next few weeks or months). But, there are no assurances that those same costs will not increase over time
due to unforeseen geological, or other factors that can have a negative impact on project development and
engineering.
Lower Gold Prices: The price of gold, as any other commodity, is subject to risks and fluctuations beyond any
individual company’s control. Gold mining companies tend to make their economic viability assumptions based
on optimistic commodity price scenarios. But, investors should consider what the longer-term gold price will
be, that is at the start of production (in the case of Orsu about 2021), rather than in the period they commit to
invest. In 2018, 2019, gold prices have rebounded thanks to intensifying global risks and doubts over the U.S.
Federal Reserve’s ability to continue increasing interest rates. But there are no assurances that the current gold
price trend will persist. Moreover, Bullish price trends make gold mining projects more attractive to individual
investors and lenders alike, a sudden drop in prices can dramatically alter sentiment, forcing a gold project to
shut down.
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RISK/REWARD RESEARCH
NXTanalytics Risk/Reward Research - BUY | June 18th, 2019 - www.nxtanalytic.com
ORSU METALS HAS NEAR TERM 3 MILLION OUNCE POTENTIAL, IS A STRONG M&ACANDIDATE AND LIKELY ABLE TO SELF FINANCE DEVELOPMENT
Orsu Metals Corp. is on track to hit significant milestones in 2019, from expansion of the resource to
issuing a preliminary economic assessment (PEA) report. We believe that everything is in place for Orsu
to reach production stage by 2020 or 2021. The company sits on a highly appealing resource with the
potential to yield high grades with low capital costs. This is also why Orsu Metals has become such an
attractive M&A target; especially, considering the presence of adjacent ambitious and massive gold
mining operations.
RATING: BUYMOMENTUM BIAS: AGGRESSIVE
CONCLUSION
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RISK/REWARD RESEARCH
NXTanalytics Risk/Reward Research - BUY | June 18th, 2019 - www.nxtanalytic.com
NXTAnalytic RATINGSNXTanalytic is a research firm, which analyzes the potential strategic performance of companies, using a
risk-reward approach.
NXTanalytic uses a qualitative rating methodology to evaluate the potential and performance of
promising junior companies in various sectors, identifying the risks and opportunities they face, including
intangible issues, which can pose strong implications for future stock price performance. Moreover,
NXTanalytic recognizes that management capacity, not always captured by conventional analytical
methods, is an essential factor in determining the success of junior companies; therefore, this factor may
receive significant weighting in the rating.
How we develop our ratings: In order to generate the ratings, our analysts evaluate companies relative
to peers in the junior sector, taking into consideration specific sector risks and positives/rewards.
NXTanalytic accomplishes this through the completion of our analytical matrix, reviewing a wide
variety of information from the company, sector research, and, importantly, interviews of the company
managers by our analysts. The resulting report provides individual investors with a qualitative tool, which
allows them to become better aware and acquainted with stock opportunities. We believe companies
with above-average ratings reflect an above average opportunity for investors. We utilize three ratings. In
descending order from best to worst, the ratings are:
BUY | SPECULATIVE BUY | HIGH RISK
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RISK/REWARD RESEARCH
NXTanalytics Risk/Reward Research - BUY | June 18th, 2019 - www.nxtanalytic.com
Each of the ratings corresponds to a coefficient, derived as follows: The analyst assigns a numerical
score from 1-16 next to each of the Rewards and a score from 1-16 next to each of the Risks described in
Risk/Reward Report.
The ratio of reward vs. risk (the sum of the four most significant rewards divided by the sum of the
four most significant risks), becomes the rating coefficient which intends to project potential future
performance. Note, while the maximum numerical score is 16 and the lowest 0.0625, these represent
extremes that no stock could ever achieve. All stocks present some combination of opportunity and
risk. In our assessment the best opportunities for investors are companies who have substantially more
reward than risk.
Correspondence between coefficient and rating: Stocks that have a coefficient of 2.1 or higher are
considered Buy. A Speculative Buy rating corresponds to a coefficient in the range of 1.1-2.0 which
represents a higher risk profile. A coefficient that falls below 1.1 represents the highest proportion of risk,
and is therefore rated as High Risk.
BUY2.1 AND HIGHER
SPECULATIVE BUY1.1-2.0
HIGH RISK0-1.0
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RISK/REWARD RESEARCH
NXTanalytics Risk/Reward Research - BUY | June 18th, 2019 - www.nxtanalytic.com
Future stock performance is generally dynamic rather than static therefore our rating also includes a
guidance component; the Momentum Bias, which indicates the direction in which the analyst believes
the company is performing and whether there are near term factors that could affect share prices.
The Momentum Bias can be one of the following five categories, listed in order of performance from best
to worst:
URGENT | AGGRESSIVE | POSITIVE | NEUTRAL | NEGATIVE
A stock may be rated as a ‘speculative buy’ or even ‘high risk’. But, if the Momentum Bias is ‘urgent’ or
‘aggressive’ the analyst believes that company performance could improve significantly in the immediate
or near term. Finally, the analysts can and will adjust momentum bias and reward/risk scores if they
consider events and situations related to a company have changed.
MOMENTUM BIAS
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RISK/REWARD RESEARCH
NXTanalytics Risk/Reward Research - BUY | June 18th, 2019 - www.nxtanalytic.com
Disclaimers and DisclosureThe opinions expressed in this report are the true opinions of the analyst about this company and industry. Any “forward looking statements” are our best estimates and opinions based upon information that is publicly available and that we believe to be correct, but we have not independently verified with respect to truth or correctness. There is no guarantee that our forecasts will materialize. Actual results will likely vary. NXTanalytic and its shareholders may or may not own any shares of the subject company, may or may not make a market or offer shares for sale of the subject company, and may or may not have any investment banking business with the subject company. The analyst does not own any shares of the subject company, does not make a market or offer shares for sale of the subject company, does not have any investment banking business with the subject company. Fees may have been paid by the subject client to NXTanalytic. NXTanalytic takes steps to ensure independence including setting fees in advance and utilizing analysts who provide an expert independent analysis. We have ultimate editorial control of all research, timing of the release of reports, and our opinions. Coverage cannot be unilaterally terminated. Distribution and dissemination of our reports utilizes multiple channels, including but not limited to: email, databases, targeted advertising, subscription, outsourced advertising, audio/visual presentations, and social media.
This report contains “forward looking” statements. Forward- looking statements regarding the Company and/or its stock’s performance inherently involves risk and uncertainties that could cause actual results to differ from such forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to, market conditions, market perception of the company and its management, projects, products, services, technology, and opportunity. Further there are risks related to the continued acceptance of the Company’s products/services in the marketplace; acceptance in the marketplace of the Company’s new product lines/services; competitive factors; new product/service introductions by others; technological changes; dependence on suppliers; systematic market risks and other risks discussed in the Company’s periodic report filings, including interim reports, annual reports, and annual information forms filed with the various securities regulators. By making these forward looking statements, NXTanalytic and the analyst/author of this report undertakes no obligation to update these statements for revisions or changes after the date of this report. NXTanalytic, its shareholders, parent or affiliates do not make any warranties, expressed or implied, as to any results to be obtained from using this information and makes no express or implied warranties or fitness for a particular use. Anyone using this report assumes full responsibility for whatever results they obtain from whatever use the information was put to.
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This REPORT is solely for informative purposes and is not a solicitation or an offer to buy or sell any security. It is not intended as being a complete description of the company, industry, securities or developments referred to in the material. Any forecasts or opinions contained in this report were independently prepared unless otherwise stated, and HAVE NOT BEEN endorsed by the Management of the company which is the subject of this report. Additional information is available upon request.
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The information contained in this report is intended to be viewed only in jurisdictions where it may be legally viewed and is not intended for use by any person or entity in any jurisdiction where such use would be contrary to local regulations or which would require any registration requirement within such jurisdiction.
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RISK/REWARD RESEARCH
NXTanalytics Risk/Reward Research - BUY | June 18th, 2019 - www.nxtanalytic.com
NXTanalytic (www.nxtanalytic.com) is a research firm, which analyzes the potential strategic performance of
companies, using a qualitative risk-reward approach.
We developed the Risk-Reward research approach based on our many years of experience in the early stage
growth sector. It’s our belief that investors consider making investments in this sector based on strengths,
opportunities, and risks rather than on financial performance.
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