Orosur Mining Inc. - Q3 2017 Results & Oper...

Orosur Mining Inc. - Q3 2017 Results & Operations Update; YTD: $4.1M Profit, $8.7M Cash From Operations & First Quarter of New San Gregorio West UG Mine Production

Orosur Mining Inc.

Orosur Mining Inc. (“Orosur” or “the Company”) (TSX/AIM: OMI), the South American-focused gold producer, developer and explorer is pleased to announce its unaudited results for the third quarter ended February 28, 2017 (“Q3 17” or the “Quarter”) and an update of its exploration and development activities. All dollar amounts referred to in this announcement are stated in US dollars.

OPERATIONAL HIGHLIGHTS

  • Successful completion of first full quarter of production of Orosur’s new mine, San Gregorio West Underground (“SGW UG”).
  • Availability of services at SGW UG, such as water, power, access and ventilation as well as operational factors such as fortification and development works have been implemented successfully.
  • Q3 2017 production was 7,820 oz of gold, in line with the 7,274 ounces produced during Q3 2016, and also in line with full year guidance of 35,000 to 40,000 oz. The Company views this positively considering production is typically lower during the ramp up of new mines.

FINANCIAL HIGHLIGHTS

  • Quarterly cash operating costs were $858/oz (6% reduction from Q2), in line with expectations and guidance for FY 17, which remains $800 to $900/oz. As of a result of the additional development capex associate with the SGW UG mine, including ramp, access and ventilation shaft work, All-In-Sustaining Costs (“AISC”) were $1,289/oz compared to $978 oz in Q3 16.
  • Year to date (“YTD”) aggregate capex of $9.0M due to the Company’s higher than anticipated investments following the exploration successes at SG UG East and Central and the Company’s strategy to develop a larger UG mine at and around SGW.
  • The Company remains committed to developing SG UG without any external funding as planned and the total cash balance at Quarter end was $2.4M (compared to FY 16: $4.3M),with total debt remaining at $0.2M compared to $0.4M at May 31, 2016.
  • Cash generated from operations YTD amounts to $8.7M (YTD 16: $5.9M).
  • YTD net profit after tax is $4.1M (YTD 16: profit of $0.5M).
    • Average gold price of $1,198/oz compared with $1,143/oz during Q3 2016

OUTLOOK

  • Exploration drilling in and around the San Gregorio UG area has yielded positive results, successfully intersecting gold mineralization in every hole, which is expected to significantly enhance mine economics and increase reserves and resources in the short and medium term. Further drilling is underway and ongoing.
  • In Colombia, the Company finalized a geological model of its high grade Anzá gold project to determine the exploratory potential with the assistance of Mine Development Associates (“MDA”) of Reno, Nevada. The results of this work were announced on January 19th, 2017.
  • The Anzá project includes a gypsum mine, which has environmental and mining permits granted by the Colombian authorities. As previously announced, Orosur has recently taken over operatorship of the mine. The gypsum permits can be readily expanded for additional tonnage, providing the ability for Orosur to fast-track permitting for future gold mining operations.

Ignacio Salazar, CEO of Orosur, said:

“Operations remain healthy and profitable, with $8.7M of cash generated in the first three quarters of our fiscal 2017. We are especially pleased with progress so far given this is the first quarter with SGW UG as the Company’s primary source of ore feed to the plant in Uruguay, achieving a unit operating cost of $858/oz in the Quarter despite the normal constraints associated to the initial months of operation of a new mine.

As previously announced, SGW UG has been financed entirely from operational cash flow and the Company aims to maintain this financial discipline in its future expansion into SG UG East and Central, with the objective of developing a larger UG mine in, around and below the current SGW UG.

In Colombia, we have made significant progress in the geological interpretation and modelling of our high grade Anzá gold project and we plan to commence a 15,000m - 30,000m drilling campaign. We are excited to be moving this project forward since taking over operatorship of the gypsum mine, which has now resumed operations after finalizing remediation work and improved operational standards during the quarter. With exploitation permits in place, the existing gypsum can be readily expanded, enabling Orosur to fast-track future gold mining operations.”

               

Operational & Financial Summary1

 

Q3 17     Q3 16     Diff YTD 17 YTD 16 Diff
Operating Results                        
Gold produced     Ounces 7,820 7,274 546 24,623 27,917 (3,294)
Operating cash cost3 US$/oz 858 803 55 807 886 (79)
AISC US$/oz 1,289 978 311 1,184 1,096 88
Average price received     US$/oz     1,198     1,143     55     1,263     1,131     132
Financial Results (unaudited)                        
Net profit after tax US$ ‘000 363 3,071 (2,708) 4,064 475 3,589
Cash flow from operations2     US$ ‘000     1,674     4,804     (3,130)     8,703     5,902     2,801
                         
Cash & Debt Summary (unaudited)    

Feb. 28,
2017

   

May 31,
2016

    Diff
Cash balance US$ ‘000 2,400 4,320 (1,920)
Total debt US$ ‘000 161 352 (191)
Cash net of debt US$ ‘000 2,239 3,968 (1,729)
 

1

 

Results are based on IFRS and expressed in US dollars

2

Before non-cash working capital movements

3

Operating cash cost is total cost discounting royalties and capital tax on production assets.

 

Q3 2017 Operations and SGW Development

Q3 2017 production was 7,820 oz of gold, in line with the 7,274 oz produced during Q3 2016.

In Q2 2017 the Company transitioned from Arenal UG to SGW UG, following which Q3 2017 saw commissioning of the SGW UG new mine concluded successfully. Availability of services such as water, power, access and ventilation as well as operational factors such as fortification and development works have been implemented with approximately 60% of gold production for the Quarter coming from the SGW UG mine in this, its first quarter in production. Typically ore production and operational efficiencies are lower at the start of any new mine, especially underground operations, due to the low operational flexibility given the lack of available production stopes. As the SGW UG mine development advances, efficiency is expected to improve and the Company expects to see improvements as early as Q4 2017.

Q3 2017 Financial Summary

Average cash operating costs were of $858/oz, compared to $803/oz in Q3 2016. As previously announced in the Company’s Q2 2017 results, with the new SGW UG mine commencing production in the Quarter, unit costs have begun to gradually reduce (cash operating costs in Q2 2017 were: $914/oz) and the Company expects the same trend to continue in Q4 2017 given more available production stopes and higher grades from SGW UG.

During the Quarter, the Company invested $3.2M in capex and $0.4M in exploration compared to $0.9M and $0.6M, respectively, in Q3 2016. The bulk of the investment for the construction of the SGW UG mine was concentrated in Q2 and Q3 2017 including work related to the ramp, access and the ventilation shaft. In addition, the Company completed construction of phase 4A of the tailings dam during the Quarter. As a result of the additional capex in SGW UG and phase 4A of the tailings dam, AISC were $1,289/oz compared to $978/oz in Q3 2016. This marks a reduction compared with Q2 2017 ($1,345/oz); a trend the Company expects to continue in Q4 2017 and beyond.

The average gold price realized for the Quarter was $1,198/oz (Q3 2016: $1,143/oz).

Net profit after tax was $0.4M compared to a profit of $3.0M in Q3 2016. The difference in profit between the two quarters was mainly due to the benefit of $2.5M recognized during Q3 2016 as a result of the settlement with the Government of Uruguay for the elimination of the benefit relating to the export of industrialized goods, as previously announced.

YTD profit after tax was $4.0M compared to a profit of $0.5M in the same period of the previous fiscal year. The improvement is mainly due to a higher realised price of gold ($1,263/oz) compared to ($1,131/oz) and lower overall costs of sales, which have been partially offset by lower relative production for the period; overall, resulting in more profitable production (Contribution margin YTD 2017: $9.3M compared to $5.2M in YTD 2016).

Cash flow from operations before working capital variations was $1.7M compared to $4.8M in Q3 2016 (which also included the $2.5M settlement explained above). YTD 2017 cash flow from operations before working capital variations was $8.7M compared to $5.9M for the prior year due to better operating performance in YTD 2017 as explained above.

The cash balance at the end of the Quarter was $2.4M compared with $4.3M at May 31, 2016. The decrease in cash was mainly due to increased investment in the development of the SGW UG (total investment in SGW UG during the period ended February 28, 2017 with total capitalised expenditure at period end of $5.2M compared to $1.0M as at May 31, 2016). The YTD total capex amounts to $9.0M as the Company is made higher than anticipated investments following the exploration successes in SG UG East and Central as Orosur plans to develop a larger UG mine in and around SGW UG. The Company remains committed to develop SG UG without any external funding, as planned, and the debt balance at the end of the Quarter remained $0.2M compared to $0.4M at May 31, 2016. The current debt outstanding is related to equipment leases.

Orosur has a $1.5M committed and undrawn line of credit with Banco Santander available as at February 28, 2017, and as of the date hereof.

FY17 Outlook & Guidance

The Company's forecast production guidance for FY17 remains between 35,000 to 40,000 oz of gold at operating cash costs of between $800 - $900/oz.

As in the past, variations in production and unit costs have been expected to occur, quarter on quarter, as the mine plan draws ore from multiple sources at varying grades, stages of development and stripping factors. As previously announced, the Company incurred higher unit costs during the transition and start of operations in SGW UG which are expected to decrease further in Q4 2017 given successful progress in the SGW UG development.

Uruguay Underground Exploration Projects - Potential for Significant Expansion of the SGW UG Mine

SGW UG is a continuation, at depth, of the historic San Gregorio open pit deposit which has produced approximately 536,000 oz at an average grade of 2.12 g/t. During FY17, the Company intends to add reserves and expand prospective SGW UG operations within three neighboring underground projects. These projects are the SGE Underground, SGW UG Deep Extension and the SG Central UG areas. The last two projects relate to areas which were not previously considered in the SGW UG mining plans and represent new opportunities with a strong potential for near term resource and reserve delineation.

A comprehensive and extensive drilling campaign is currently being carried out at San Gregorio. During FY 17, a total of 9,000m of drilling are planned in order to confirm and increase reserves and extend the SGW UG mine.

At the end of the Quarter, 6,000m, of the planned 9,000m have been drilled:

a) SGE UG: After finalizing a drilling program of 19 drill holes (totalling 3,803m) in this area, a geological and a block model has been built and the Company is currently working on reserves estimation. Drilling information indicates that this zone is still open in the East.

b) SGC UG: Four new holes have been drilled in the area, for a total of 16 holes (totaling 3,315m), with 2 holes (610m) remaining to be drilled in SGC UG for the remainder of FY 17.

The results of the new holes indicate:

           
Hole ID     From (m)     To (m)     Intercept
SGDD16-84B     310.25     313.40     3.15 m @ 4.20 g/t
SGDD16-081     243.70     249.30     5.60 m @ 1.14 g/t
SGDD17-080     272.00     282.55     10.55m @ 1.11 g/t
SGDD17-082B     244.20     246.70     2.50m @ 1.13 g/t
SGDD17-083     268.40     271.85     3.45m @ 0.63 g/t
 

Current results indicate the potential existence of additional reserves in the immediate area. There also appear to be strong indications that mineralization extends to the western part towards the SGW UG mine. Further drilling, planned in the current proposed drill program, is required to validate this.

To see a full PDF of the release with images, click here.

Uruguay Open Pit Exploration Projects

Veta Rey

An RC drilling campaign has been finalized at Veta Rey. A total of 19 holes totaling 983m were completed. Five of these holes were categorized as infill drilling; with the rest aimed to testing the continuity of central and south orebodies. Infill drilling has successfully validated the remaining reserves; however, exploratory drilling has failed, at this point, to prove the continuity of the mineralization between the two ore zones.

Sobresaliente Domain

To date, four holes, from a program of six, have been drilled at the Mantos Verdes project in the Sobresaliente domain with the following results:

                       
Hole ID     From (m)     To (m)     Intercept (m)     Total length (m)    

grade
(g/t)

 

    including
MVRC17-01     5     7     2     31     0.32      
MVRC17-02     14     18     4     43     0.80     1 m @ 2.22 g/t
MVRC17-03     19     22     3     32     0.96     1 m @ 2.2 g/t
MVRC17-04     21     24     3     35     3.26     1 m @ 9.1 g/t
 

This drilling has identified a mineralized zone which currently is being economically reviewed.

Colombia

The Company continues to advance its high grade Anzá gold project. During Q3 2017, the Company finalized a geological model. Based on this geological interpretation, an exploration target was formulated with the assistance of MDA and the results announced on January 19th, 2017.

During 2017, the Company plans to commence a 15,000m - 30,000m drilling campaign, culminating in the preparation and publishing of a maiden N.I. 43- 101 compliant resource report for the APTA project. Currently the Company is in the planning and tender process for the above mentioned drilling program.

The Anzá project includes a gypsum mine, which has environmental and mining permits granted by the Colombian authorities. Historically, the gypsum mine was operated by a third-party contractor. As previously announced, Orosur recently took over operatorship of the mine. The Anza gypsum mine is back into operation after Orosur finalized remediation work and improved operational standards during Q3 2017. Current mining activities are focussed on operational development work required to re-start gypsum extraction. The gypsum permits can be readily expanded, providing the ability for Orosur to fast-track permitting for future gold mining operations. The Company anticipates that by operating a mine at Anzá in parallel with the gold exploration drilling campaign should, allow Orosur to advance the gold project more swiftly and accurately towards feasibility.

Qualified Person's Statement

The technical information related to the current assets of Orosur in this presentation has been reviewed by Miguel Fuentealba, a Mining Engineer who is considered to be a Qualified Person under NI 43-101 reporting guidelines. Mr. Fuentealba is a graduate in Mining Engineering from the University of Santiago de Chile and is an AusIMM Member and Qualified Person of Chilean Mining Commission. Mr. Fuentealba has 20 years of professional experience in the field of mining engineering, mine development and management.

Forward Looking Statements

All statements, other than statements of historical fact, contained or incorporated by reference in this news release, including any information as to the future financial or operating performance of the Company, constitute "forward-looking statements" within the meaning of certain securities laws, including the "safe harbour" provisions of the Securities Act (Ontario) and the United States Private Securities Litigation Reform Act of 1995 and are based on expectations estimates and projections as of the date of this news release. There can be no assurance that such statements will prove to be accurate. Such statements are subject to significant risks and uncertainties, and actual results and future events could differ materially from those anticipated in such statements. Forward-looking statements include, without limitation success of exploration activities; permitting time lines; the failure of plant; equipment or processes to operate as anticipated; accidents; labour disputes; requirements for additional capital title disputes or claims and limitations on insurance coverage. The Company disclaims any intention or obligation to update or revise any forward looking statements whether as a result of new information, future events and such forward-looking statements, except to the extent required by applicable law.

For more information, please visit www.orosur.ca

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ('MAR'). Upon the publication of this announcement via Regulatory Information Service ('RIS'), this inside information is now considered to be in the public domain.

About Orosur Mining Inc.

Orosur Mining Inc. is a fully integrated gold producer, developer and explorer focused on identifying and advancing gold projects in South America. The Company operates the only producing gold mine in Uruguay (San Gregorio) and has assembled an exploration portfolio of high quality assets in Uruguay, Chile and Colombia. The Company is listed in Canada (TSX: OMI) and London (AIM: OMI).

         

Orosur Mining Inc.

Condensed Interim Consolidated Statements of Financial Position

Thousands of United States Dollars, except where indicated

 
       

As at February 28,
2017 ($)

 

   

As at May 31,
2016 ($)

 

 
Assets
 
Cash 2,400 4,320
Accounts receivable and other assets 1,939 1,770
Inventories 12,189     12,069
Total current assets 16,528 18,159
 
Accounts receivable and other assets 550 550
Property, plant and equipment and development costs 14,686 10,106
Exploration and evaluation costs 18,785 17,250
Deferred income tax assets 2,534 2,534
Restricted cash 228     221
Total non-current assets 36,783 30,661
       
Total assets 53,311     48,820
 
               
 
Liabilities and Shareholders’ Equity
 
Trade payables and other accrued liabilities 10,981 10,586
Current portion of long-term debt 161 253
Environmental rehabilitation provision 360     360
Total current liabilities 11,502 11,199
 
Long-term debt - 99
Environmental rehabilitation provision 5,232     5,327
Total non-current liabilities 5,232 5,426
       
Total liabilities 16,734     16,625
 
Capital stock 61,110 60,751
Contributed surplus 5,832 5,925
Deficit (29,433) (33,497)
Currency translation reserve (932)     (984)
Total shareholders’ equity 36,577     32,195
 
Total liabilities and shareholders’ equity 53,311     48,820
 
       

Orosur Mining Inc.

Condensed Interim Consolidated Statements of profit/(loss) and Comprehensive profit/(loss)

Thousands of United States Dollars, except for loss per share amounts

 

 

Three months ended

 

February 28 February 29

Nine months ended

 

February 28 February 29

      2017 ($)     2016 ($)     2017 ($)     2016 ($)
       
Sales 8,845 8,936 32,268 33,591
Cost of sales (8,376)     (8,187)     (27,186)     (33,352)
Gross profit 469 749 5,082 239
 
Corporate and administrative expenses (457) (474) (1,688) (1,664)
Restructuring costs (144) (217) 144 (1,911)
Exploration expenses and exploration written off (6) (3) (17) (14)
Obsolescence provision (1) - (101) -
Other income 471 2,722 1,328 3,467
Net finance cost (53) (68) (143) (205)
Derivative loss - - (412) -
Net foreign exchange gain/(loss) 78     378     (110)     560
(112) 2,338 (999) 233
 
Profit before income tax 357 3,087 4,083 472
 
Recovery (provision) for income taxes 6     (16)     (19)     3
Net profit for the period 363     3,071     4,064     475
 
Other comprehensive profit/(loss)
Cumulative translation adjustment 109 (144) 52 (951)
                   
Total comprehensive profit/(loss) for the period 472     2,927     4,116     (476)
 
 
Profit per common share:
Basic 0.00 0.03 0.04 0.00
Diluted 0.00 0.03 0.04 0.00
 
       

Orosur Mining Inc.

Condensed Interim Consolidated Statements of Cash Flows

Thousands of United States Dollars, except where indicated

 

Nine months ended

 

February 28

February 29

    2017 ($)     2016 ($)

Net inflow/(outflow) of cash related to the following
activities

 

Cash flow from operating activities

Net profit for the period 4,064 475

Adjustments to reconcile net income to net cash provided
from operating activities:

Depreciation 4,208 5,006
Exploration and evaluation expenses written off 17 14
Obsolescence provision 101 -
Fair value of derivatives 181 -
Accretion of asset retirement obligation 57 57
Stock based compensation 49 28
Gain on sale of property, plant and equipment (187) (15)
Other 213     337
Subtotal 8,703 5,902
Changes in working capital
Accounts receivable and other assets (259) (2,325)
Inventories (220) 3,137
Trade payables and other accrued liabilities 395     (4,142)
Net cash generated from operating activities 8,619     2,572
 
Cash flow from financing activities
Loan payments (191) (1,066)
Proceeds on sale of common shares of Anillo SPA -     710
Net cash used in financing activities (191)     (356)
 
Cash flow from investing activities
Purchase of property, plant and equipment and development costs

 

(8,829) (2,638)
Environmental tasks (152) (198)
Proceeds from the sale of property, plant and equipment 240 33
Exploration and evaluation expenditure assets (1,607)     (2,239)
Net cash used in investing activities (10,348)     (5,042)
 

Decrease in cash

(1,920)

(2,826)

 
Cash at the beginning of period 4,320     4,787
 
Cash at the end of period 2,400     1,961
 
       

Orosur Mining Inc.

Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity

Thousands of United States Dollars, except where indicated

 

Nine months ended

February 28

February 29

     

2017 ($)

   

2016 ($)

 

Capital stock

Balance at beginning of period 60,751 60,544
Termination consideration - 195
Exercise of stock options 326 -
Grant of shares 33     -
Balance at end of period 61,110     60,739
 
Broker Warrants
Balance at beginning of period -     62
Balance at end of period -     62
 

Contributed surplus

Balance at beginning of period 5,925 5,824
Stock based compensation recognized 90 28
Exercise of stock options (183)     -
Balance at end of period 5,832     5,852
 

Deficit

Balance at beginning of period (33,497) (32,287)
Net profit for the period 4,064     475
Balance at end of period (29,433)     (31,812)
 
Currency translation reserve (932)     (1,208)
 
Shareholders’ equity at end of period 36,577     33,633

Orosur Mining Inc.
Ignacio Salazar, +1 (778) 373-0100
Chief Executive Officer
info@orosur.ca
or
Cantor Fitzgerald Europe
David Porter / Craig Francis / Philip Davies
Tel: +44 (0) 20 7894 7000
FTI Consulting
Ben Brewerton / Oliver Winters / Sara Powell / Emerson Clarke
Tel: +44 (0) 20 3727 1000

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