High-grade gold play, Orinoco Gold, set for re-rating as first production looms

With China yesterday confirming a sizeable increase in its overall gold reserves, it’s timely to review one of our preferred emerging production plays, Orinoco Gold (ASX: OGX). The company’s Cascavel gold project in Brazil involves the development of a relatively small-scale/low-cost start-up operation, with plans to increase both the overall resource base and mine-life via cashflow-funded exploration. Orinoco has just advised that it is set to benefit to the tune of $0.5m annually in operational cost savings as a result of its move to relocate its Cascavel treatment plant much closer to the actual mine location. The lack of a JORC-compliant resource at Cascavel due to the high-grade ‘nuggety’ nature of the mineralisation might discourage some investors until grade is established and steady-state production achieved; however this presents a buying opportunity in our view. The rewards outweigh the risks and we have confidence that a significant re-rating is now taking place ahead of the early 2016 production milestone. Indeed, recent share price appreciation indicates the market is becoming increasingly comfortable as development activity progresses in line with expectations.