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Date : 24/06/2021

Ora Banda Mining

ASX :

OBM

Market Cap : $140.04 Million

Buy

52 Week Range : $0.145 - $0.420

Share Price : $0.155

Ora Banda is well-funded, has infrastructure in place , and is ahead of schedule as it works towards starting three new mines. We recommend a "Speculative Buy".

Company Analysis

Ora Banda Mining Ltd. (ASX: OBM) is positioned as a unique gold exploration and development company that owns 100% of the Davyhurst Gold Project, located in the highly productive Eastern Goldfields region of Western Australia. Davyhurst is about 120 kilometres north-west from Kalgoorlie. The area is known to be rich in gold deposits and Ora Banda is at this time carrying a total mineral resource inventory of 2.17 Moz at an average grade of 2.8 g/t of gold and defined mineral reserves of 460 Koz at 2.4 g/t of gold. It is also worth noting that the tenements present a big prospect for nickel and copper. The company is well equipped with its own centralised 1.2 Mtpa processing hub and an established infrastructure at Davyhurst which is a significant factor that facilitates Ora Banda to rapidly unlock the value contained within the known resource base.

The firm was established in 2002 and is managed by an experienced team in the mining industry, legal and project finance. Ora Banda appears to have all the prerequisites to strike gold. In fact, the company found its first gold at the Davyhurst project not so long ago in February this year, after recommissioning the operation’s process plant. There is also enough reason to believe that this is just the beginning. Ora Banda is putting a lot of effort in developing all the supporting infrastructure to allow Davyhurst to reach a capacity of 1.2 million tonnes a year.

Reasons why Ora Banda is a hidden treasure

  1. We think that the market is underestimating the potential of Ora Banda. OBM is one of the new gold producers in Australia despite having been founded just close to ten years ago. Operations accelerated recently with the first gold pour earlier this year. The potential is significantly high, and the company has all it takes to succeed – an experienced team, robust projects with latent high-grade ore reserve and most importantly, OBM is concretely producing and extracting the yellow metal.
  2. Ora Banda has progressed well at Davyhurst recently and we should not forget about other interesting projects in the area. The company also has two operating mines with a third in development. Riverina and Golden Eagle are operating with a capacity of 1.2 Mtpa and continue to build ore stocks.
  3. OBM owns projects that have ample mineral resources available, and the company is intensively performing exploration. It has been found that gold mineralisation occurred across all geological domains of the project.
  4. Ora Banda’s detailed definitive feasibility studies (DFS) proved to be a financially rock-solid project at Davyhurst. We can expect an initial 5.2 years of mine life with an output capacity of 81 Koz per annum. With good execution and at this rate, we can expect a lucrative annual free cash flow of $68.8 million with gold priced at $2,550/oz.
  5. Davyhurst has a considerable pre-existing infrastructure in place comprising a 1.2 Mtpa conventional CIP processing facility, an extensive road network, a 160-person camp, administrative and workshop buildings and a large water bore field. That is a huge advantage that sets Ora Banda ahead for a swift and low capital-intensive route to solid profit.
  6. We also like the fact that the firm has ample liquidity with $33 million in cash as of the end of last year with an expected additional inflow of $21 million via a share placement and $4 million from an ongoing share purchase plan.
  7. Ora Banda is well-funded and has an infrastructure in place while starting three new mines recently. The firm is ahead of its schedule and on top of that, global gold demand is projected to grow by 1.3 thousand tonnes by a compounded growth of 3.9% in the next five years. We think that it is just a matter of time before Ora Banda reaches profitability.

Company Updates

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Source: Tradingview.com

Ora Banda shares

FY21 onward Outlook: Ora Banda to ramp up production

The company has reported contained gold within ore mined is 26 Koz to date with 9 Koz ore scheduled to be mined by the end of FY21 which is in line with the definitive feasibility studies estimate of 35 Koz. Surprisingly, gold production for FY21 is projected to be much more consequent than the anticipated 13 Koz output for the period and has revised its production outlook to 18 Koz. Ora Banda expects production to be in line with its estimate at 82 Koz.

2020 and the first quarter of 2021 have been a tough period for Ora Banda and the firm faced numerous issues along the way. As for every business and in particular, in the mining industry, COVID-19 has disrupted daily operations. The open pit and underground mining productivity have been impacted by the consequence of the pandemic. Travel restrictions and an intensive tight and highly competitive labour market weighed on the company’s operating performance. Despite these challenges, we have witnessed a quick reaction from the company to implement a range of strategies to tackle the ongoing productivity issues.

The other concern was related to bottlenecks at the processing plant during early Q2-2021. The company confronted low slurry densities caused by the high proportion of viscous, low-density oxide material from stage one of the Riverina Open Pit. The company did take the necessary actions to resolve the problem by increasing the availability of fresh rock to the mill and therefore, we can expect an increase in gold production level to match the estimated levels by the September quarter.

It is just getting started

Three mines are catching our attention: Missouri and Riverina open pit and Golden Eagle underground. The combined reserve of these three mines is estimated at 227 thousand oz. With the Missouri open pit that is likely to provide as soon as by the end of this month an immediate source of higher grader, harder primary ore feed. OBM has sent key items of the mining fleet and site facility materials to launch mining activities. The company has also remodelled the open pit into two stages, which we think is a wise approach to accelerate the process and allows ore mining activities without major site preparation. Good progress has been made at the Missouri open pit and we can expect outputs that will increase the average gold grade processed through the Davyhurst mill from July this year.

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Source: Ora Banda

Despite the recent operational obstacles, Ora Banda is quite ahead of its schedule especially at its Riverina open pit. Mining at the site is making steady progress, having to date delivered more ore tonnes at a marginally lower grade for more total ounces than the DFS estimate. While process plant throughput has been impacted by the high proportion of Riverina low-density oxide feed, increasingly harder transitional and primary material is scheduled to be mined at Riverina by the end of this month. In the meantime, the firm is taking the necessary measures to utilise all the stockpile of the high, medium, and low grade to optimise the processed ore blend.

At the Golden Eagle site, Ora Banda has been working with the underground mining contractor to improve production rates. And so far, May production to date from the Golden Eagle underground mine of 25,620 dry metric tonnes slightly exceeded the total production of 25,235 dry metric tonnes of March quarter. Recently, new information has emerged from a review of the geological interpretation revealing new geometry of the underground structure. The new geometry suggests wider, flatter dipping ore zones combined with sub-vertical areas. That is possibly some good news as the flat-lying nature of the mineralisation has the potential to increase the ounces per vertical metre at the Golden Eagle mine.

While we have seen Ora Banda dealing with some operational difficulties in FY20 and the first half of FY21, we have recognised some encouraging refinements made by the company to improve gold production towards the DFS estimates. What gives us confidence in Ora Banda’s ability to reach its production target is the simultaneous progress in three of its mines. The advancement of the Missouri open pit in the production schedule is promising. Riverina and Golden Eagle as well exhibit great improvements, which we believe will set the company to accelerate its ramp-up. As we remain focused on the massive opportunity of Riverina, Missouri, and Golden Eagle, we should not forget the other key deposits of Sand King, Waihi and Callion which contribute as well to projected growth in annual ore output by a CAGR of 2% from 2021 to 2025.

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Source: Ora Banda

Industry Analysis

Gold is in high demand. Especially during a period of crisis as you know. The current situation of uncertainty is likely to stay for a while. Hence, the global gold market is projected to grow by 1.3 thousand tonnes by 2025. That is a steady compounded growth of 3.9%. Gold demand emanates mainly from investment by 46.6% followed by the jewellery sector, central banks, and the technology sector with 36.8%, 8.5% and 7.9%, respectively. Central banks and investments in gold reveal the potential to expand at over 4.1% by 2025. In the developed world, the U.S. demand for gold is likely to progress by 3%. Germany is expected to add over 47.7 tonnes over the next five years while the rest of European demand will reach over 37.8 tonnes. In the rest of the world, China will be the game changer with a potential acceleration in gold demand by 6.2% over the next few years to attain a massive 368 tonnes.

In the long run, we believe that the jewellery market which is the second largest contributor in gold demand is poised for growth. We expect it to reach a global market size of $636 billion by 2025. At this rate, the sector is likely to expand at a CAGR of 8.1% over the next five years, fuelled by an increase in disposable income and a shift in consumer shopping preferences, particularly in the emerging economies.

Investment Thesis

Ora Banda has all the necessary resources, infrastructure, and material to ramp up its production. That is a very substantial competitive advantage that sets the company on track to become profitable. Ora Banda owns 100% of the Davyhurst project which according to the DFS proved to be substantial considering an initial 5.2-year of mine life with possibly a total of 6.1 million tonnes of ore reserve. With good execution, we can expect a lucrative annual free cash flow of $68.8 million with gold quoted at $2,550/oz.

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Source: Ora Banda

Ample liquidity to progress rapidly: Ora Banda just raised $25 million in total

Ora Banda entered 2021 with $33 million in cash. And more recently, the firm successfully raised $21 million through a share placement with commitments from professional and sophisticated investors. The placement consists of about 124 million new fully paid ordinary shares priced at 17 cents. The placement was strongly received by new and existing shareholders. Institutional investors remain committed to the company which represents nearly 77% of Ora Banda’s shareholders. Additionally, the company announced an SPP to existing and eligible shareholders to raise a further $4 million at the placement issue price of 17 cents per share as well. That will be in total about $25 million of additional cash available. The proceeds together with the existing $33 million cash balance will be a big contribution to support the company’s growth. Ora Bora reported that the capital will be used to fund resource definition, reserves work, regional exploration, ramp-up costs and working capital for the Davyhurst gold project.

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Source: Ora Banda

Ora Banda’s project costs remain stable quarter-on-quarter at $45.1 million with half of the expenses dedicated to development while the other half of $20.6 million is the cost incurred to operate pre-production mining. The project costs might seem excessive, but it is utterly acceptable at this stage of pre-production. Ora Banda spent $1.25 million on exploration and evaluation during the first quarter of the year.

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Source: Ora Banda

The cash management discipline exhibited by the company is tremendous. Over the last three years, Ora Banda did pretty well to improve its working capital despite being at a pre-production phase. Net working capital since FY17 increased by more than 121%. According to our analysis, we expect even better liquidity and anticipate available cash balance to triple by the end of FY21.

We are fairly excited to see things getting serious with the company’s first gold pour not so long ago early this year. And that is just the beginning. With all the undertaken efforts, we believe that OBM will reach a capacity of 1.2 million tonnes a year promptly. This will positively affect the company’s revenue which we forecast to grow by a CAGR of 7.67% in the next 3-year period.

Technical Analysis

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Trend

OBM dipped to an all-time low during the COVID-19 global market sell-off peak in March last year down to a single-digit cent per share. The fall in price did not last long, OBM rebounded strongly and recovered rather quickly with the stock appreciating by 351% to 42 cents per share in just a few months. The share price then ventured into wild swing between 25 cents and 40 cents per share. During most of the time throughout 2020, OBM attempted to remain above the key level of 34.5 cents, however, earlier this year, OBM capitulated and dropped back to its long-term price equilibrium of 17 cents per share. The 17 – 20 cents area is a multi-year confluence zone. The 17 cents level is also the latest Share placement and SPP issued price.

Key price levels

We suggest paying particular attention to the 17 cents level as it is a key level and the current price equilibrium. If OBM can consolidate above the 17 cents which is also the 78.6% Fibonacci level, The next resistance to consider on the upside is the 50% retracement at 25.5 cents. Once this resistance level is cleared, a breakout might occur which can send the share price back to its July 2020 high at 42 cents.

Volume and momentum

Volume surges since the last 200-day with the 20-day volume average up by 141%. OBM is consolidating in the near term around the price equilibrium of 17 cents per share, evolving in a range between $45 cents and 50 cents per share.

Trade consideration

  • Market participants might be interested to enter a key support level: $15 cents.
  • Primary target price above $A 25.5 cents per share
  • Secondary target price at $A 50 cents per share
  • Consider reducing exposure below $13 cents
  • It is recommended exiting the trade below $10 cents

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Recommendation

We are issuing a speculative “Buy” recommendation for Ora Banda. It seems that the market is underestimating the potential of the company and that might be the right time to consider this oversold stock before it becomes overcrowded. Ora Banda has indeed been around for a while, but things accelerated recently with the first gold pour earlier this year. Also, Ora Banda owns 100% of the Davyhurst gold project which has a lot of potential. 5.2-years of mine life and an output capacity of 81 Koz per annum. Ora Banda is well-funded, has infrastructure in place , and is ahead of schedule as it works towards starting three new mines. The global gold demand is projected to grow by 1.3 thousand tonnes at a compounded growth of 3.9% in the next five years. Thus, we estimate that it is just a matter of time before Ora Banda reaches profitability.

 

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