Mackie Research’s Barry Allen article commenting on Oromin

http://uk.ibtimes.com/articles/20100514/gold-silver-junior-miners-intermediate-miners-senior-miners-developers-risk.htm

BA: Companies in that tier are not producing. They’re companies either building mines or at the early stage of mine assessment. They’re companies that have advanced beyond exploration but don’t have a mine in production.

TGR: And the risks?

BA: They have incumbent risks associated with them depending on where in the development cycle they are. For companies that are reasonably well advanced as far as having mines under construction-Osisko Mining Corp. (TSX:OSK) is an example-it would typically have a lower-risk profile than a company like Oromin Explorations Ltd. (TSX:OLE;OTCBB:OLEPF) or Sandspring Resources Ltd. (TSX.V:SSP), which really have just a National Instrument 43-101 resource estimate and are conducting pre-feasibility studies of those resource ounces and trying to get to the feasibility stage. So it is a much higher-risk profile.

TGR: What types of risk?

BA: There are lots of different types of risks. You clearly have a funding risk because most of these are unfunded projects. You have a construction risk in the sense that if you have a reserve, then you have to start building the mine. In some cases, we don’t even have a reserve; we have a resource, and we’re not sure how much of that resource is going to convert into reserves, so you have a geological risk. In that tier, you’re going to want a much better return to compensate you for the risks.

TGR: Some companies in the development category have been doing quite well. Tell us about those.

BA: In the development equities, it’s about taking those risks that we talked about and removing them from the equation. A company that was our top pick for this year was called Comaplex Minerals. It’s been taken over by Agnico-Eagle. That’s a classic in what we really are looking for in this group of companies. What Comaplex did was de-risk the project to the extent that there was someone out there, in this case Agnico, who felt that this would be a good fit for its asset base. We got a good valuation as a result.

We’re looking at a couple more that fit into that category, albeit much further behind than a Comaplex, like an Oromin or a Sandspring. We would say Oromin is probably a year or so behind where Comaplex was; we expect there will be some form of take out there as well, but it won’t be until the end of this fiscal year until we’ll be in a position to really see that.

And then with a Sandspring, which is even further behind than Oromin, that’s likely going to be a 2011 event. But this is about expanding the resource size beyond what we currently believe it to be; then taking those resource ounces and de-risking them into reserves; and then about looking at the economic prospect of developing them into an operating mine. That’s where you have your highest risk; but if you get it right, you also get your best returns.

May 15th, 2010
Categories: Uncategorized . Author: admin