Orosur’s Costs Go Down As Gold Grades Go Up

By Alastair Ford

“It’s good that the first half is gone”, says Orosur Mining’s Ignacio Salazar, on the phone from Uruguay where he manages the company’s primary asset, the Arenal mine.

He says that because the first half of fiscal 2015, actually the six months to November 2014, were characterised by low grades and hence higher unit costs.

But now that Orosur is through the low grades the numbers are starting to look a little healthier again, as the most recent set of quarterlies, to the end of February, demonstrates.

Aside from the gold price, which is clearly beyond Orosur’s control, the next most important number is probably operating costs. Allowing that the gold price doesn’t collapse, it’s costs that will dictate margin and determine whether or not the company makes a profit.

And costs are on the way down. In the quarter to the end of February the company’s cash costs stood at US$876 per ounce, down from US$984 per ounce in the previous quarter and US$945 per ounce in the quarter before that.

Those higher costs were a consequence of the lower grade and had they continued might have started to spook investors already jittery at the fluctuations of the gold price.

As it is, the margins look secure and Orosur in turn looks secure at Arenal. And there could be more cost savings to come.

“We have the capacity to squeeze costs more”, says Ignacio. “Almost every month we try to come up with two or three initiatives. Recently things have gone quite well in terms of forecasts and planning.”

Underground at Arenal

That’s true, because if Orosur isn’t exactly setting the world on fire in this environment with mining and gold equities out of favour, it is at least improving on its own terms.

“The company a few years ago was struggling to meet targets”, says Ignacio, modestly refraining from mentioning that that changed almost as soon as he was appointed back in April 2013.

Back then the focus of the company was less clear – there was exploration in Chile, exploration in Uruguay and Arenal itself. But as the equity markets cratered, there was one virtue which most junior companies craved – production.

Where others have fallen by the wayside Orosur has survived, because when all’s said and done Arenal is actually quite a good mine.

Yes, the mine life is short, but that is often the way with South American mines. And when the mine life gets too low, the company simply drills it out more. US$5 million will be spent on further drilling at Arenal this year.

“We are trying to do work with the highest chance of success in the shortest time”, says Ignacio. “We are trying to replace production with resources as we go along. And everything that we are looking at is extremely close to the plant. A lot of effort is going in to Uruguay to extend the mine life. 100,000 ounces would be a big deal. We don’t need three million ounces. Something like that would add two years.”

As for that other great imponderable, the gold price, with grades now improved Ignacio is now sounding pretty confident.

“We can manoeuver around the gold price”, he says. In recent months around 70 per cent of production has been coming from the underground operation at Arenal, with the remainder from open cast mining. A new open pit is about to be brought on stream, and the production ratios look set to be maintained this year.

The next big news will be quarterly financials in mid-April, after which it will be on to close off the final quarter and into fiscal 2016. Let’s hope market conditions are better then than they are now, but either way Orosur looks set fair to be able to weather the storm.