Oracle Moves to Copper Production
I’ve been to visit Oracle Mining just north of Tucson twice now in the last six months. The progress they have made is remarkable.
If you think the price of copper is going to keep going up, you should buy Oracle. For each share of stock, you have 10 pounds of copper in the ground in an SEC qualified reserve. If you think the price of copper is going to go down, you should buy Oracle. Each share of stock has about 28.75 pounds of high grade (2.33%) in a SEC accepted, non-43-101 resource. Oracle is in that wonderful position that their grade is so high, they can produce when most existing mines are shuttering their doors. They can make money in almost any environment.
The Oracle Ridge Copper Mine was owned by Lundin Mining and produced between 1991 until 1996 producing about 800 TPD when Lundin shut it down because it simply wasn’t big enough for them to worry about and the price of copper was too cheap. They auctioned the mill off and sold the land to developers determined to turn every inch of ground in Arizona into either a parking lot or a trailer park. That didn’t work out as planned and in 2009 the predecessor to Oracle purchased the mineral rights and a long-term lease on the patented mining claims.
Arizona and copper have a long history and mining in the area has taken place since discovery of oxide copper in 1873. Limited production was reported from a number of small mines until 1968 when someone realized all of the mineralization was somehow connected.
The mine has some 11 miles of underground development. That opens up a lot of production faces and the ultimate goal of 2000 TPD is certainly possible from an ore production point of view. Oracle estimates a Capex of some $100 million to begin production at a rate of 1500 TPD by Q4 2013. The company estimates the value of the underground workings would cost $40 to $50 million to duplicate. With a market cap of about $57 million and over $14 million in the bank, the stock appears to be pretty cheap.
The issue isn’t ore. There is an existing 3P SEC accepted reserve of 8.8 million tons and a resource of 24 million tons. Oracle plans on production at a full rate of about 700,000 mt per year for a current mine life expected to be about 30 years.
The mineralization was believed to be a series of 11 flat lying skarn type units. Current drilling appears to show all of the ore bodies are connected and it may be as simple as drilling in the untouched areas to expand the mine life and both quality and quantity of the ore.
Oracle has made a number of brilliant moves lately that should help them drive quickly to production. On February 28 they announced closing a $9.75 million placement to a Chinese group out of Hong Kong with no warrants and done at the market price. That’s pretty unusual and it always helps to have a deep pocket investor who has a vested interest in your success.
On March 12, the company announced signing a term sheet with Credit Suisse AG for up to $70 million to help finance the mill. With projects at this stage, the issue really isn’t geological. They have SEC accepted drill results, reserves and a resource. You have to have the money to build the mill and equip the mine. Company management is focused on what is important at this stage.
There are a hundred land mines that junior mining companies stumble onto on the road to a production mine and mill. Lots of them aren’t apparent to the casual potential investor. One giant issue is local political support or lack thereof.
My experience with both Nevada and Arizona lately is that both states should be on life support. The economy is dead and the number of homes in default is well above 50%. If either state is to survive, they need to produce something.
Government agencies in the US have been the bane of mining companies for many years. I suspect that is changing or better put, I hope that is changing. If the BLM and local agencies support Oracle and I think they will, these guys will be producing copper in 18 months or so. But any sticking points will revolve around permitting.
I’m impressed with the strategic thinking of management and the depth of experience of the geological staff. This is the sort of project that makes reputations that last for years. It’s an opportunity for both management and investors.
With over $4.5 billion of high-grade copper in the ground and an enterprise value of under $45 million, the stock seems pretty cheap. Typically share prices will tend to increase as the project moves closer to production. For any copper bugs out there or China Bears, this looks like a pretty ideal company.
Oracle Mining is an advertiser and we are biased. The price of the stock hasn’t been hammered lately, as have so many other mining companies. I can’t say how Canadian or Americans feel about the stock but I know of at least one Chinese investor who really likes it.
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