My prior article on Orinoco Gold (ASX:OGX) (OGX:ASX) (OGX.AX) was on August 12th when the stock traded at A$ 0.09 per share. Recall, Orinoco Gold is an Australian (ASX-listed), Brazilian-focused gold company. The Company is targeting first production from its 70% owned, high-grade Cascavel Gold Project within 4-5 months. What’s happened at Orinoco since my article in August? Essentially nothing. End of story? No. The absence of bad news for a soon to be producing gold company in Brazil or elsewhere is actually very good news. Orinoco is on time and on budget with a cash cushion for unforeseen contingencies.

When MD Mark Papendieck talks, people listen…. and buy shares

I wish I could claim that my compelling article in August sparked a 100% gain in the share price, but that would not be true. The spotlight largely belongs to Managing Director Mark Papendieck who has tirelessly spent the past several weeks on the road telling and retelling the story. Obviously, Mr. Papendieck has a very good story to tell and expertly articulates it. Behind the scenes, but equally important, is Papendieck’s management team and Board who share in the lofty accomplishment of generating no bad news. Recall that 9 of the 12 listed personnel on Orinoco’s website have either direct exposure to Brazil or are long-time experts in mining​ or both. [Please see  list of Management & Board members.] As yet another reminder, please consider the credentials of Orinoco Gold’s Co-Founders. [Note: passage from my prior article]

Managing Director, Mr. Mark Papendieck, Diploma of Law from the NSW Legal Practitioners Admission Board (Dip. Law, NSW LPAB).

Chief Geologist, Dr. Marcelo ​De​-Carvalho, (Metalogeny), PhD (Metalogeny & Geochemistry), CREA​​.

P​resident Brazil Operations, Dr. Klaus Peterson,​ M.Sc (Mineralogy & Petrology), PhD (Mineralogy & Petrology), AusIMM, CREAM.Sc (Mineralogy & Petrology), PhD (Mineralogy & Petrology), AusIMM, CREA.

Not only is Cascavel shovel ready, permitted and funded through to production, it’s also a high-grade gold mine. How high grade?

The Cascavel Project hosts high-grade, structurally-controlled coarse gold shoots, where underground sampling has returned bonanza grades including 15 metres grading 88 grams of gold per tonne. Bulk samples from the Cuca winze (350m north) and the nearby Mestre winze (90m south) have recorded grades of 27g/t gold (2.8 tonnes) and 39g/t gold (500kgs) respectively.

Country risk largely behind Orinoco, fruits of team’s labor within reach.

Usually a bullish article on a company would try to sneak the risks factors in at the end of the article, if addressing them at all. Instead, I will comment on what I believe investors are most concerned about, country risk, (Brazil). It’s true that the country in question is not a top-tier mining destination, but please note three things. First, the State of Goiás in central Brazil is known to be one of the better parts of Brazil to operate in. Second, Orinoco Gold is successfully working in a collaborative manner with ALL stakeholders, not just shareholders.

Third, gold Majors such as Yamana Gold and AngloGold Ashanti have had multiple successes in Brazil. Consider Brio Gold, a subsidiary of Yamana. It holds 2 operating mines, Pilar & Fazenda Brasileiro and C1 Santa Luz, a constructed mine to soon to be re-commissioned. Brio is the real deal, with total gold production this year of up to 130,000 ozs + 100,000 ozs upon the re-commissioning of C1 Santa Luz next year.

Yamana also has a low-cost Chapada open pit gold-copper mine, located in Goiás State, (same State as Orinoco), and the Jacobina mine located in Bahia state in northeast Brazil. Back to Orinoco Gold, a reason for the cheap valuation is country risk and a lack of a JORC compliant resource. If those factors were no longer present, the company’s valuation would probably be twice that of today’s.

Ultimately though, the best evidence of Orinoco Gold successfully combating country risk is demonstrated by the fact that it’s merely 4-5 months from first gold! So, yes there’s country risk, but Orinoco has painstakingly traversed it and will be the next gold producer in Brazil. Any country risk now falls squarely on the shoulders of other juniors further away from production.

Valuation Exercise

In August I explained why I thought, “Orinoco Gold could be one of the cheapest risk-adjusted juniors on the planet.” How about today, with the stock having doubled? The market cap is now ~ A$ 35 million = ~ C$ 32.5 million = ~ US$ 25 million. While the valuation is less attractive, there remain catalysts for the stock price to continue upwards. Articles and interviews by myself and others and more importantly the Orinoco team getting out to tell the story means that the stock still has legs. Gold companies almost always see increased valuations in the months leading to production.

Assuming a successful first pour and a relatively trouble-free ramp up to stage 1 production of ~ 20,000 ounces (14,000 net to Orinoco), the Company could reach positive cash flow next year. In addition to excess cash to re-invest towards the goal of ramping up, over time, to stage 2 production of ~ 40,000 ozs, (28,000 net to Orinoco), there’s a decent chance that equity dilution could be mitigated. With an impressive pipeline of projects described in my prior article, and possibly reduced equity dilution, especially compared to junior gold mining peers, I strongly suggest that readers and investors alike take a closer look.

Orinoco Gold has strong upside to an increase in the price of gold. In fact, many have commented on metals & minerals producers in Canada & Australia benefiting from their respective weak currencies vs. the U.S. dollar. For better or worse, the Brazilian real is down significantly more. The CAD$ is down 11% year-to-date, the AUZ$ 12% and the Brazilian real down a whopping 32%.

Conclusion….

The gap between producers and developers is widening as access to development capital continues to be difficult if not impossible to obtain. I believe the closer that Orinoco Gold gets to first production in 4-5 months, the lower the Company’s risk and the higher the Company’s share price, all else equal. I believe that Orinoco should exhibit relatively low correlation to the major stock indices. Some advanced explorers and developers, still requiring large cap-ex checks to be written, may never cross the finish line. There’s virtually no risk of that happening here. An interesting question, do advanced exploration and development companies truly have leverage (exposure) to the gold price? I would say no, even though some claim they do. On the other hand, Orinoco does have upside to an increase in the price gold and from reaching production early next year. That’s 2 near-term catalysts other non-producers don’t share. The fact that Orinoco Gold can cross the finish line without meaningful equity dilution is all the better.

Orinoco Gold (Ticker: ASX:OGR) (OGR:ASX)  is a speculative, small cap company, with limited trading volume. An investment in Orinoco Gold is not suitable for all investors. Readers and investors are encouraged to do their own due diligence before buying or selling stocks, especially small cap stocks. Due diligence should include consulting with one’s own investment advisor. The author, Peter Epstein,CFA, MBA owns shares of Orinoco Gold. Mr. Epstein is not a registered financial advisor. Readers should take this fact into careful consideration.