OROCO - Copper from Mexico

[Seinakadun_Keisari]

I’ll start a thread for this one too, as there doesn’t seem to be one yet.

So, we’re talking about Oroco Resources, a junior miner that owns 81% of the Santo Tomas copper concession.

It trades on the TSXV (my favorite nowadays) at a price of 1.91 CAD.

Today we got the first 3D IP results which were really strong; the area’s copper ore reserves are likely double or even triple what has been estimated so far. 3D IP is a type of mapping method based on “electrical currents” used to check how current flows underground, and by interpreting them, one can estimate what kind of ore is where, resulting in a 3D image of the area.

https://orocoresourcecorp.com/oroco-announces-significant-3d-ip-survey-results/

The current NPV (net present value) is 3B CAD; when you divide that by about 210M shares, you get just under 15 CAD. What makes this interesting is that the current NPV doesn’t include today’s data, meaning the NPV could double = share value likewise.

Since it’s a junior miner, they won’t start production themselves but will sell the mine to a major once reserves are confirmed with a traditional drilling map; the junior obviously won’t get the full NPV value (the major wants their cut) but, for example, 50%.

Copper demand is growing all the time and production can’t keep up; in fact, current mines are starting to run dry little by little, so more is needed and they will have to pay more to the juniors.

The price of copper has been rising steadily:

Copper Mar 26 (HG=F) Stock Price, News, Quote & History - Yahoo Finance

There’s really good information available about this company, for example, on YouTube from Mariusz Skonieckyl, including this:

The guy has probably 20 videos on Oroco where he goes through the case in great detail.

After today, this is one of my largest holdings, and the market doesn’t swing this around much.

This is not investment advice and is by nature a very risky investment. Size your positions accordingly.

[Seinakadun_Keisari]

Santo Tomas is a really good place for a mine. Locals support it, the government is sympathetic, no environmental problems, infrastructure ready (deep-water port, railways, electricity, water, etc.).

If you’re interested, you should set aside 3-5 hours and go through all the videos of the aforementioned type on the subject, including a tour on site where he interviews all the key people. He himself owns a large chunk of shares.

[PureProfit]

I’m doing my own due diligence on this. Here’s a very comprehensive analysis of Oroco and the Santo Tomas project from a couple of years ago. The report states that the mine is profitable at a price level of $2.75, but above $3, the business case is pretty solid. Now, the latest 3DIP mapping significantly improves the situation.

Report: Oroco Resource Corp — Advancing a giant copper porphyry project

The following questions come to my mind:

• What kind of political risks are associated with mining in Mexico? Does the “people” want their share?
• Are the necessary environmental permits in place for the mine? Those beautiful mountain slopes in someone’s eyes look quite different after the mine has been operating for 25 years…
• At what point is a mine typically sold to a major? What does Oroco do after that?

[Seinakadun_Keisari]

Local support exists and political risks are low, so there shouldn’t be a problem.

Once the 3DIP (3D Induced Polarization) is complete, drilling permits are next. The area has been drilled before, so obtaining permits shouldn’t be an issue.

Sales to a major typically occur once drilling is complete and the Definitive Feasibility Study (DFS) is ready, meaning the amount of ore, its concentrations, and the extent of the ore body are known. In Oroco’s case, I understand we’re talking about a sale in 2022.

[Jekku]

How will this deal be “monetized” for the shareholders? A new, bigger bait on the hook in the form of a new area of expansion, or in some other way?

[Seinakadun_Keisari]

That’s a very good question, and the honest answer is I don’t know!

I’ve been looking into how profit sharing works and will get back to you when I find something concrete.

[Jekku]

Well, I had Google look it up, and it seems the situation for them is either to try and grow through new ventures, meaning they’ll invest money to generate independent returns, or sell the whole company to a larger one.

[Seinakadun_Keisari]

Yes, I also knew that the general options are dividends, selling the entire company, or selling the business and starting a new one. What Oroco has planned is still open. Oroco has had no other projects, so selling the entire company is probably a realistic outcome, but who knows, the company has been around since 2006.

[Jekku]

Yeah, since the industry is unknown to me, I had to check it on a general level, even though those are also options that can be considered with common sense The good things here are that the price of copper is rising and that the potential of the claim is greater than initially estimated, so these are good drivers at the moment, especially if the whole company is sold to a larger one. Of course, a lot can happen during the year, but why not put a small stake in it.

Edit. And let’s add that there will certainly be strong demand for copper in the coming years, so the price should remain at a good level in the future as well.

[TyötönSijoittaja]

I don’t know this Oroco well, but I’ve come across Mariusz’s videos while researching the tanker side. That seems like a large low-grade deposit that requires high metal prices to work. Of course, we are now in a good cycle in that copper should do well for the next ten years. You should always treat promotions with a bit of caution, and for example, Mariusz works in cooperation with Oroco.

“575,000 finder’s fee warrants issued to Mariusz Skonieczny in connection with the Financing. Each finder’s fee warrant will entitle the holder to purchase one common share of the Company for a period of 24 months from closing at a price of $0.60 per share.”

There is nothing wrong with this in itself, it’s just a common industry practice to attract investors and liquidity.

[Seinakadun_Keisari]

Yes, MS participated in Orococo’s private placement last fall, meaning they found the financiers for it and received warrants as a reward. They also bought more with their own money in that private placement, which has been openly discussed in videos.

I’ve been following the discussion on Twitter, and many people’s estimates for OCO’s “redemption price” are 6-8 CAD, which I think is still quite conservative.

[LS2]

It certainly looks like an interesting case! I’m currently watching Mariuszen’s videos, and the content is indeed relevant. The fact that the guy isn’t wearing a suit seems to be more of a branding issue .

The correlation with the price of copper is quite obvious, but the rise has progressed with an insane leverage compared to, for example, SCCO (copper mine).

On the left scale, copper futures; on the right, OCO and SCCO

[Seinakadun_Keisari]

This uses leverage precisely because there is still risk, although it is constantly decreasing.

Remaining risks:

*Actual drilling results – I consider this a fairly small risk because the area has been drilled before and the 3DIP (3D Induced Polarization) aligns well with those results.

*Environmental permits – this is also a small risk because the project has already progressed quickly to this point and locals like the creation of jobs, and there are no flying squirrels or similar in the area. The Mexican government is also pro-mining, especially as oil revenues have decreased.

*Copper price – demand is constantly growing and production is declining, so I consider this a fairly small risk.

For me, this has a truly excellent R/R (Risk/Reward) ratio, and that’s why I’m steadily increasing my stake.

[LS2]

@PureProfit’s linked analysis, in my opinion, is quite solid with all its assumptions.

If one wants a truly pessimistic calculation, take the scenario where the NPV at an 8% discount with a copper price of $2.75 is $1.25 billion. Oroco practically owns 80% of that. If the exit were NPV * 50%, the value of the company’s ownership would be $500 million USD, or $639 million CAD. The company’s current market cap is $260 million CAD. There’s plenty of buffer for “business risks” even in a bear scenario.

In light of current information, I consider the realization of such a pessimistic scenario quite unlikely.

[Seinakadun_Keisari]

The best thing is that the analysis doesn’t include yesterday’s 3DIP results, but it’s a worst-case scenario (if we forget about wars, etc.) and yet the stock doubles.

I can easily come up with a scenario where the stock ten-bags, and it doesn’t even require much imagination.

[LS2]

Yep. Base and bull scenarios blow up the bank!

[Perttu_Hamalainen]

Of course, the price of copper is a risk, but I think it’s very unlikely to drop.
A few facts:

-Copper miners are real giants, Oroco is a mouthful if you want to buy it
-There is not enough copper currently, which is why the price is rising
-Minable deposits are really deep (everyone remembers the guys stuck 2km deep in Chile)
-Current deposits are running out, new ones are needed
-As industrial countries seriously transition to electricity (wind power, electric cars, solar panels, etc.), copper consumption will only grow
-As developing countries acquire their first electrical devices, copper demand will increase
-There is no reasonable alternative to copper (aluminum oxidizes and much more of it is needed in terms of cable cross-section)
-Copper is not speculated on compared to silver and gold
-By investing in a mining company, you only get the mine’s profit, which is quickly calculated and therefore immediately priced in

-Investing in a sensible junior mining company offers the possibility of big gains - the valuation of a good company’s discovery grows quickly if the deposit turns out to be large and easy to mine.
-Ease of mining is the key word - there are many deposits that are so far in the middle of nowhere that mining is not sensible (lack of infrastructure, or the area is politically unstable)

[Seinakadun_Keisari]

Please open your DMs, @lee2sos, I have something to discuss. It’s related to Oroco, so it’s not entirely off-topic.

[Odetus]

I’m in with a small initial position of 1500 shares and I’m seriously considering adding more. I’ve been reading about this company on some Canadian forums, and their content is consistent with what’s in this thread. I’m a bit puzzled, though, if the deposit is as valuable as hyped here and on other forums, why is the stock price falling? Is it such a small company and a niche corner of the stock market that bigger money/algos aren’t following it? Copper futures have dropped to a month ago’s price, but surely that shouldn’t reflect in the stock price? They are still over $3.5, and the trend is upward.

[Bob_B]

I don’t know if I’ve looked at the right company’s stock, but how did you get the idea that the price is falling? Apparently, the market is so crazy that if it doesn’t go up 10-200% every day, it’s interpreted as a drop.

It’s possible I’m looking at the wrong company’s charts.