Why Bell Potter is bullish on this smallcap gold-miner

Bell Potter analyst David Coates upgraded his price target for Orecorp (ASX: ORR) on Monday, a company which is exploring for gold in Tanzania. 

Orecorp is rated as a BUY. 

Coates has given Orecorp a price target of $0.93—a 10.7% increase over the last price target of $0.84. 

This reflects a total return of 116% using a recent closing price of $0.43.

As at 1120 am (AEST) Monday 20 February 2023, the price is $0.445.

Orecorp’s performance suffered through 2022. This time last year, the stock was priced at $0.74. 

Why is Bell Potter bullish? 

Orecorp’s Nyanzaga Gold Project (NGP) is located in the Lake Victoria Goldfields (LGV) of Tanzania, an established mining province. The tenement covers 23.4sq.km. 

The LGV region is geologically underpinned by greenstone belts, often coincident with precious metal mineralisation. 

Orecorp’s NGP, Bell Potter’s David Coates noted on Monday, is “one of the most advanced, largest scale and highest grade developments among ASX-listed gold exploration and production companies.”

While reiterating caution on the speculative nature of his assessment, Coates has rated Orecorp a BUY based on recent development progress on-site and in the boardroom. 

Financing options healthy 

Principally, Coates is closely watching Orecorp’s successful solicitation of Expressions of Interest (EOIs) from international banks for debt of more than US$400m to bankroll the project to its full-scale vision. 

“This is in excess of ORR’s US$300m debt target and…compares favourably with the NGP’s US$474m pre-production capital cost,” Coates wrote on Monday. 

Orecorp published its Definitive Feasibility Study (DFS) for the project in August last year, which cites the US$474m figure. 

Given the company is also keeping an open mind towards growing its Mineral Resource Estimate (MRE) through ongoing drilling, that document could be revised yet before a Final Investment Decision. 

Regulatory navigation boosts valuation 

“ORR is assessing in-country gold refining that would reduce the royalty from 6% to 4%,” Coates wrote on Monday. 

“On our assumption, [this reduces] life of mine All In Sustaining Cost (AISC) by US$45/oz and adds ~A$40m to our un-risked NGP valuation.” 

Coates is also monitoring the company’s recent strategic move towards an extension of the NGP’s Life of Mine (LOM) with the logistics of a potential open pit optimisation. 

In that long-term scenario, Stage 4 of the open pit gold mine at NGP would see the pit optimised to allow for the LOM to extend from 10.7y to 14y. That optimisation would, in summary, add an extra 8.4Mt of ore into the MRE for the project. 

The company has also executed a Memorandum of Understanding (MOU) for the supply of hydropower-generated electricity to power the NGP. 

Geopolitical considerations 

Tanzania was once deemed an undesirable location for foreign miners but following the election of the Samia Hassan government, the business environment has shifted towards a more development-friendly atmosphere. 

A supportive anecdote is that Hassan last year met with US Vice President Kamala Harris on a diplomatic trip. 

Tanzania is one of the leading constituents behind the proposed (and much delayed) East African Federation (EAF), and also hosts a higher concentration of english speakers than neighbouring jurisdictions. 

The vision of the EAF ultimately seeks to establish an East African bloc, but progress on that front remains volatile and was not included in the notes of Bell Potter analyst David Coates. 

Orecorp's one year charts