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Orvana Minerals Corporate Update (May, 2010)

Marc Davis of www.BNWnews.ca recently caught up with Roland Horst, the new CEO of Orvana Minerals Corp. This undervalued emerging gold and copper producer has an impressive track record and is poised for aggressive growth, which Mr. Horst explains to BNWnews.ca.

Marc Davis: To date, Orvana has been a very low cost gold producer, with over 400,000 ounces of output from the Lower Mineralized Zone at its Don Mario mine in Bolivia. Now that this zone is mined-out, tell me about the company’s plan to mine the more readily accessible ore in the Upper Mineralized Zone at Don Mario?

Roland Horst: This is in process and we are working on the plant right now. We expect to have this completed this fall and the focus will in fact be on the Upper Mineralized Zone. This will be primarily a copper producer with output about 75% copper and 25% gold and silver.

Also, this deposit has a very low stripping ratio and it is right next to the plant. So it’s very accessible and should add another 9 years of mine life to this property in Bolivia. We have a very capable mining team led by Carlos Mirabal, our President and Chief Operating Officer.

Marc Davis: What do you expect your cash costs will be for this above-ground ore?

Roland Horst: We’ve done this on a copper equivalent basis and it should be about a $1.50 per pound copper equivalent.

Marc Davis: The proximal Las Tojas open-pit operation will extend gold production through 2010 as an interim mining operation. Why does it have such a short mine life and what are your cash costs?

Roland Horst: It’s a satellite pit. It’s in the vicinity and it was really a stop-gap until we develop the Upper Mineralized Zone. The grade is less than two grams and we’re going as deep as we can in the open pit but the cash costs are substantially higher than they were in the Lower Mineralized Zone (which is now all mined-out). But it is generating cash flow and is certainly helping us in the transition period. We’re producing about 2,000 ounces of gold per month.

Marc Davis: Orvana has now expanded its operations into northern Spain. Tell me about your relatively new acquisition, specifically the past-producing El Valle-Boinas/Carles gold mine?

Roland Horst: Well, it was operated for 9 years by the Rio Narcea Gold Mines operations, which were bought by the Lundin group. They were operating during a period of lower gold prices and had a good operation there and they were eventually bought by Kinbauri Gold Corp., which is a company that we bought last September. Kinbauri has done extensive exploration and development work there and has added additional ounces to that deposit.

Orvana was able to come in and purchase Kinbauri for $45 million and that included the mill and all the development work. We’re now refurbishing the mill and spending about $50 million to put this mine back into production, with production planned for early next year.

Marc Davis: How much in the way of gold resources has Orvana outlined at this Spanish gold/copper mine that you are revitalizing?

Roland Horst: Based on drilling to date, there are roughly 2.5 million ounces in gold resources there. About half of that is in the ‘Measured and Indicated’ category. How much of that will be considered actual reserves will be determined in the mine plan which will be completed in June. We expect in the future that a lot of that inferred gold resource should move into the Measured and Indicated category.

We’re putting a shaft down about 400 metres but that shaft could be deepened to 600 metres. We think there’s substantial potential there to keep this operation going for some time providing gold prices stay in the area that they’re at right now.

Marc Davis: What is the status of the permitting process at the El Valle-Boinas/Carles mine?

Roland Horst: All the permits are already in place with the exception of the old open pit, which we’re using for tailings. That’s all lined and ready to go and we’re just waiting for the permit for that. The past permits weren’t terminated, but just suspended and we’re able to revive the permits. Normally there would be a 2-3 year waiting process. But the advantage that we have with the work that was done in the past is that we can just revive the permits that were there, already in place.

Marc Davis: How is the political environment in northern Spain with regards to the mining industry?

Roland Horst: It’s very supportive. As you know, Spain has about 20% unemployment. And the area that we’re in is a mining area. There’s a long history of mining there going way back to the Roman era. But also recently, there has been coal mining in that area. There were 20,000 coal miners employed at one time. Now it’s down to 6,000.

The community is very supportive of what we’re doing. All the permits are issued by the local authorities. We’re going to employ about 200 people. There are a lot of people who have left the area who are now coming back as they want to continue to work in the mining sector.

Marc Davis: What’s the ‘big picture’ potential for this revitalized gold/copper mine?

Roland Horst: Well, the big picture is a projected 100,000 ounces of gold per year. We’ll also be producing roughly 9 million pounds of copper a year. So, it’ll be 80% gold with a small silver component, too.

And with the roughly 20,000 ounces of gold and overall 11 million pounds copper from Bolivia, we plan to have about 120,000 ounces of gold production in 2011 and over 10,000 tonnes copper.

Marc Davis: You just announced a very impressive high grade NI 43-101 resource estimate at your Copperwood copper project in Michigan. What’s next for this project in 2010?

Roland Horst: The next stage involves moving on to a scoping study. We expect to have that study out some time in the summer.

As you’ve stated, we’ve outlined a very good resource there of roughly 900 million pounds of copper. This is going to be an underground operation and we’re now assessing what the best mining methodology is. We’ve only spent about $4 million on this project. We think it’s going to be an excellent project for us going forward. We’ll decide after the scoping study where we go next with Copperwood.

Marc Davis: What’s your growth profile like for gold production or gold equivalent over the next several years?

Roland Horst: Orvana has an excellent board and they are very focused on strategy. The objective is to be producing 500,000 ounces of gold in 5 years. Next year will take us to 120,000 ounces of pure gold. If you look at gold equivalent, we’ll probably be closer to 200,000 ounces with the copper production out of Bolivia.

We are also looking for more acquisitions and our VP Corporate Development, Bill Williams, is actively looking. We are miners. We’re mine developers and operators, not focused on exploration. We’re looking for late-stage, advanced gold projects in stable jurisdictions, preferably ones with a 50,000-100,000 ounce per annum capability, and resources of over one million ounces.

Meanwhile, we are looking at a debt facility to finance the $50 million capital cost at our property in Spain and that will leave us $40 million on the balance sheet that we can use for acquisitions going forward. We’ll also be generating cash flow for further acquisitions.

Marc Davis: Is your company well-financed and how is your working capital situation?

Roland Horst: There was over $100 million on the balance sheet last year before the company bought Kinbauri Gold Corp. for $45 million. We continue to generate cash flow out of Bolivia. And we are talking to banks to get senior debt financing in place for Spain. We are proceeding full steam ahead on the work in Spain and in Bolivia.

We’re well capitalized and we don’t intend to issue more stock at today’s prices as we think that our share price is undervalued. And until the share price is significantly higher, we wouldn’t look at doing anything on the equity side.

Marc Davis: Roland, you’re relatively new to Orvana, but I understand that you’re no stranger to the challenge of financing and commercializing successful mining operations. Tell me about your rather diversified past experience in this regard.

Roland Horst: I started my career as a geologist with Inco and went back to school at 28 and ended up working in the financial industry where I raised money for mining companies both in corporate banking and investment banking for about 14 years. For the last 14 years I’ve been heading up various different mining companies.

I was delighted to join Orvana on the first of March. I’m impressed with the fact that they have an excellent team, wonderful assets and they’re very well financed. I’m really enjoying being on-board and last month I visited Spain, Bolivia and Michigan to catch up on all the operations and to meet as many people as possible in the company.

Marc Davis: Please give me a summary of the key value drivers for Orvana’s share price over the next few months?

Roland Horst: I think the key driver will be the Spanish gold project and the related mine plan and debt financing. Everyone is looking towards the first production, which is anticipated early next year.

Investors are also watching Bolivia to see the progress on that expansion project, and Copperwood for which the scoping study will be completed this summer.

Marc Davis: Any other key points that you’d like to add?

Roland Horst: I think the key point in comparing Orvana to other mining companies is that Orvana’s story has not been well-followed. If you look at comparables and their production plans, they’re trading at substantially higher multiples than Orvana. We have been ramping up our investor relations program to raise Orvana’s profile within the investment community and among retail investors.