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Beacon Securities Ltd.| 66 Wellington Street West Suite 4050, Toronto, Ontario, M5K 1H1 |416.643.3830 |www.beaconsecurities.ca
Orca Gold Inc.
(ORG-V) Positive Infill Drill Results at
Block 14
November 16, 2016
Michael Curran, CFA (416) 507-3950
mcurran@beaconsecurities.ca
ORG’s main asset is located in Sudan, in northeastern
Africa. The May 2016 PEA outlined a robust 1.8MMtpa
open pit mine capable of producing, on average,
73Koz/yr over a 16-year minelife (+1MMoz in total) at an
AISC of US$805/oz, for an initial capital investment of
US$123 million.
Recent Results: Orca is currently completing a drill
programme involving infill and metallurgical testing.
Several intervals of 10-30 metres grading 2-4g/t gold
were encountered, with the best intercept of 30m
grading 6.6g/t at the Wadi Doum pit. At GSS, it is
believed that further drilling is likely to be successful in
joining up a number of the smaller separate pits (fig1).
Other positive aspects of Orca Gold include:
Additional Upside: with a 2.2MMoz resource base,
and delineation of further water sources, we
believe the project has potential to be moderately
upsized, which could increase annual production
towards 100Koz/yr, lower AISC costs, and improve
overall economics.
Established Development Team: Orca has a
number of management and Board members who
were involved with Red Back Mining, which
developed the Tasiast mine in Mauritania,
demonstrating experience advancing a mining
project in a lesser developed African country.
Well-funded: with +$12 million in cash, Orca is in a
solid position to complete the prefeasibility study
(PFS) in Q1/17 and a feasibility study (FS) by the end
of 2017.
Update
Previous Close $0.38
12-month Target Price $0.90
Potential Return 136.8%
Dividend Yield 0.0%
Low High
52 Week Price Range $0.12 $0.55
(C$MM, except per unit) FY15 FY16e FY17e FY18e
Revenue $0.0 $0.0 $0.0 $0.0
Net Income -$9.9 -$9.8 -$6.8 -$6.0
Shares O/S (wgt avg) 107 108 140 200
EPS (operating) -$0.09 -$0.08 -$0.04 -$0.03
CFPS -$0.09 -$0.08 -$0.04 -$0.03
P/E neg. neg. neg. neg.
P/CF neg. neg. neg. neg.
NAV $0.66 $0.82 $0.86
P/NAV 0.6x 0.5x 0.4x
Shares Outstanding 107.4 million
Mgt/Insiders 8%
(C$MM)
Market Cap $40.8
LT Debt (corporate) $0.0
Working Capital $12.5
Enterprise Value $28.3
Fiscal Year End December 31
2P Reserves - MMoz
M+I Resources 1.6 MMoz
Total Resources (M+I+I) 2.2 MMoz
(C$/sh) Q1/15 Q2/15 Q3/15 Q4/15
EPS (operating) -$0.02 -$0.02 -$0.02 -$0.03
CFPS -$0.02 -$0.02 -$0.02 -$0.03
Q1/16 Q2/16 Q3/16e Q4/16e
EPS (operating) -$0.01 -$0.02 -$0.02 -$0.03
CFPS -$0.01 -$0.02 -$0.02 -$0.03
Orca Gold is a Canadian public company engaged in the acquisition
and exploration of mineral properties in Africa. The main asset is the Block
14 project in Sudan. All prices in C$ unless otherwise indicated.
Stock Performance
BUY (unch.) $0.90 (unch.)
Annual Estimates
Valuation
Financials
Reserves / Resources
Quarterly Actuals/Estimates
Company at a Glance
November 16, 2016 Page | 2 Michael Curran| 416.507.3950 | mcurran@beaconsecurities.ca
Orca Gold Inc.
Investment Thesis…Re-rating Opportunity As Block 14
Advances
We consider Orca Gold Mining to be an attractive investment for the
combination of an undervalued emerging junior gold producer with
expansion potential and exploration upside for free. Orca’s Block 14
deposit could become a 73Koz/yr open pit mine with AISC ~US$800/oz.
We also see good potential to both increase production closer to the
100Koz/yr level and lower AISC (for moderately higher capital investment).
Early-Entrant Success – ORG is the first exploreco we are aware of to
become active in Sudan. In 2011 the company targeted an area of the
Arabian-Nubian Shield, which had not seen modern exploration
techniques, but had recent evidence of artisanal mining activity. Sudan is
now the 3rd largest African gold producer (after South Africa and Ghana),
yet it still does not have any formal mines. With the separation of Sudan
and the Republic of South Sudan (RSS) in 2011, we see the mining industry
as a natural focus for the Sudanese government to target for economic
development (as most of the oil production occurs in RSS).
Developing Africa-experienced Management Team – a number of the
senior management and Board of Directors of Orca Gold were involved
with Red Back Mining, which built/expanded the Tasiast gold mine in
Mauritania, before being taken over by Kinross Gold.
Fig 1 Block 14 Project: GSS Zone
Source: Company reports
November 16, 2016 Page | 3 Michael Curran| 416.507.3950 | mcurran@beaconsecurities.ca
Orca Gold Inc.
Valuation Methodology
Our favored valuation method for precious metals producers is a price-to-
net-asset-value (P/NAV) multiple based on a discounted cash flow (DCF)
model constructed using our estimates of the parameters of existing or
potential mining operations. We employ long-term assumptions of
US$1,300/oz for gold starting in 2018. Future year cash flows are then
discounted using a base rate of 5%, to which a risk premium is added,
depending on the overall political risk the company’s assets are exposed
to. Orca’s asset exposure to the Sudan is considered medium-high risk (5%
base + 2% premium). Until a prefeasibility study is completed, we also
impose a further 2% premium to our valuation (7% + 2 % premium).
Fig 2 Net Asset Value Breakdown: Orca Gold Inc.
Discount Rate Ownership Value Per Share (C$/sh)
C$MM FY17e FY18e FY19e
Block 14 (Sudan) 9.0% 70% $140 $0.60 $0.77 $0.81
Other exploration $0 $0.00 $0.00 $0.00
OPERATING ASSETS $140 $0.60 $0.77 $0.81
Working Capital $13 $0.05 $0.05 $0.05
LT Debt (corporate only) $0 $0.00 $0.00 $0.00
CORPORATE ASSETS $13 $0.05 $0.05 $0.05
NET ASSET VALUE $152 $0.66 $0.82 $0.86
Source: Beacon Securities estimates
In Fig. 2 we provide forward-looking NAV/sh estimates to show how the
company’s NAV is forecast to change over the next few years. For junior
gold producers (gold production <250Koz/yr), we employ a target range
of 0.50x-1.50x P/NAV. Using a target P/NAV multiple of 0.8x on our 2017
NAV estimate suggests a fair value of $0.50/sh for Orca Gold.
On a forward-looking P/CF multiple analysis basis, we forecast Orca could
achieve average CFPS of US$0.27/sh in its first year of production (2020).
Discounting back to the present (at 20% per annum) suggests $0.16/sh.
Applying our target multiple of 8.0x P/CF to this estimate, which is towards
the lower end of our 5.0x-15.0x target range for junior gold producers,
suggests a fair value of $1.25/sh.
On an adjusted market capitalization per total resource ounce basis
(AMC or EV/oz), we see that Orca Gold trades at a significant discount to
the peer group of non-producing golds with deposits of a similar grade.
November 16, 2016 Page | 4 Michael Curran| 416.507.3950 | mcurran@beaconsecurities.ca
Orca Gold Inc.
Fig 3 AMC/oz For Similar Grade Non-Producers
(M+I) (M+I+I)
Share Shares Market Measured Total Gold AMC/ AMC/
Sym- Price O/S Cap AMC Indicated Resource Grade M+I oz M+I+I oz Area of
Company Exch C$/sh M US$M US$M 000oz 000oz g/t US$/oz US$/oz Major Exploration
Amarillo Gold AGC-V $0.37 70 $20 $21 1,210 1,498 1.62 17 14 Brazil
Atlantic Gold AGB-V $0.92 168 $119 $111 1,158 2,198 1.54 96 50 Nova Scotia
California Gold Mining CGM-V $0.52 32 $13 $13 515 879 1.60 25 15 California
Columbus Gold CGT-T $0.59 143 $65 $61 1,885 2,965 1.49 32 21 French Guyana
Falco Resources FPC-V $0.99 114 $87 $81 4,563 5,616 1.54 18 14 Quebec
Midas Gold Corp. MAX-T $0.99 178 $136 $136 5,464 6,530 1.58 25 21 Idaho
Sarama Resources SWA-V $0.19 112 $16 $14 282 1,202 1.83 49 12 Burkina Faso
Treasury Metals TML-T $0.60 94 $43 $45 1,111 1,441 1.98 41 32 Ontario
West African Resources WAF-V $0.27 409 $85 $70 983 2,026 1.25 71 35 Burkina Faso
Mean 42 24
Median 32 21
Orca Gold ORG-V $0.38 107 $31 $22 1,599 2,240 1.78 14 10 Sudan
Source: Company reports and Thompson Reuters Eikon data
Using the valuation methods described above, and a 50/50 blend of fair
values generated by NAV and CF analysis, generates our 12-month target
price of $0.90 per ORG share.
Fig 4 Block 14 Project: Project Ownership (left) and Location Map (right)
Source: Company reports
Fig 5 Economic Parameters: Block 14 Project
Jul-16 Beacon
PEA model
Initial capital US$MM 123 150
Sustaining capital US$MM 31 35
Resource Size MMt 28 28
Throughput - daily t 5,150 6,300
Throughput - annual MMt 1.8 2.2
Minelife years 16.0 13.0
Mined Grade - Gold g/t 1.52 1.50
Gold recovery % 86% 88%
Gold Production - avg annual Koz 73 93
Gold Production - total lom MMoz 1.17 1.20
Op Costs US$/t 778 780
AISC US$/oz 805 877
IRR - after tax % 22%
Payback - after tax years 4
Source: Company report and Beacon Securities estimates
November 16, 2016 Page | 5 Michael Curran| 416.507.3950 | mcurran@beaconsecurities.ca
Orca Gold Inc.
Appendix: Summary Financials
Orca Gold Inc. Beacon Securities Limited
Symbol ORG-V Share Price $0.38
Stock Rating BUY Shares O/S (MM) 107.4
Price Target $0.90 Mkt Cap ($MM) 41Michael Curran, CFA (416) 507-3950
INCOME STATEMENT FY15 FY16e FY17e FY18e RATIO ANALYSIS FY15 FY16e FY17e FY18e
Revenues C$MM - - - - Dividends Per Share $/sh - - - -
Operating Costs C$MM - - - - Dividend Yield % - - - -
EBITDA C$MM (10.4) (10.0) (6.0) (6.0) LT Debt/(Total Capital) % - - - -
DD&A C$MM - - - - EV/EBITDA x - - - -
EBIT C$MM (10.4) (10.0) (6.0) (6.0) PRICES/EXCHANGE RATES FY15 FY16e FY17e FY18e
Interest Expense C$MM (0.5) (0.2) 0.8 - Gold Price US$/oz $1,166 $1,250 $1,300 $1,300
EBT C$MM (9.5) (8.8) (5.8) (5.0) Realized Gold Price US$/oz - - - -
Taxes/Recovery C$MM - - - - Silver Price US$/oz $15.38 $17.50 $18.00 $19.00
Net Income (reported) C$MM (9.9) (9.8) (6.8) (6.0) Realized Silver Price US$/oz - - - -
Non-Recurring Items/Other C$MM 0.4 1.0 1.0 1.0 US$:C$ 1.28 1.33 1.30 1.27
Net Income (operating) C$MM (9.5) (8.8) (5.8) (5.0) MINE/EQUITY PRODUCTION FY15 FY16e FY17e FY18e
Shares o/s (wgt avg.) MM 107.4 107.5 140.0 200.0 Gold Production 000 oz - - - -
EPS (operating) $/sh ($0.09) ($0.08) ($0.04) ($0.03) Total Cash Costs US$/oz - - - -
P/E Multiple x n.m. n.m. n.m. n.m. All-in Sustaining Costs (AISC) US$/oz - - - -
Cash Flow (operating) C$MM (9.5) (8.8) (5.8) (5.0) Total incl. Cash Costs + royalties AISC incl. sustex, exploration, corpG&A
CFPS $/sh ($0.09) ($0.08) ($0.04) ($0.03)
P/CF Multiple x n.m. n.m. n.m. n.m.
SCFP
Cash Flow from Operations
Net Income C$MM (9.9) (9.8) (6.8) (6.0)
DD&A C$MM 0.5 - - -
Deferred Taxes C$MM - - - -
Other C$MM 0.3 1.5 1.0 1.0
Changes in Working Capital C$MM (0.9) 0.6 - -
(10.0) (7.7) (5.8) (5.0)
Cash Flow From Investing
Capital Expenditure (net) C$MM (4.7) - (5.0) (50.0)
Acquis./Investments C$MM - - - -
Other C$MM - - - -
(4.7) 0.0 (5.0) (50.0)
Cash Flow From Financing
Equity Issues (net of costs) C$MM - 2.0 15.0 75.0
Net Borrowings C$MM - - - -
Dividends Paid & Other C$MM - 2.7 - - RESERVES / RESOURCES
- 4.7 15.0 75.0 Reserves MMoz -
Net Inc/Dec (incl FX) C$MM (14.7) (3.0) 4.2 20.0 AMC/oz* US$/oz -
Cash at End of Year C$MM 10.0 7.0 11.2 31.2 Total Resources MMoz 2.2
BALANCE SHEET AMC/oz** US$/oz 10
Cash & Equivalents C$MM 10.0 7.0 11.2 31.2 * AMC = Adjusted Market Capitalization = Market Cap + LT Debt - working cap
Total Current Assets C$MM 17.9 12.4 16.6 36.6 ** Total Resources include measured, indicated, and inferred
PP&E & Mining Interests C$MM 5.2 5.2 10.2 60.2 ESTIMATED NET ASSET VALUE (NAV)/SHARE - 2017
Other C$MM - - - - Status Own'ship $MM $/Sh %NAV
Total Assets C$MM 23.1 17.6 26.8 96.8 Block 14 devo. 100% $140 $0.60 92%
Current Liabilities C$MM 1.2 2.0 2.0 2.0 Other $0 $0.00 0%
Long Term Debt C$MM - - - - Total Operating $140 $0.60
Other LT Liabilities C$MM - - - - Working capital $13 $0.05 8%
Total Liabilities C$MM 1.2 2.0 2.0 2.0 LT Debt $0 $0.00 0%
S/Holder Equity C$MM 21.9 15.6 24.8 94.8 NAV $152 $0.66
Total Liab. & S/Holder Equity C$MM 23.1 17.6 26.8 96.8 Current P/NAV 0.6x
Working Capital C$MM 16.7 10.4 14.6 34.6 Source: Company reports, Beacon estimates
$0
$250
$500
$750
$1,000
0
50
100
150
200
2015 2016e 2017e 2018e 2019e 2020e 2021e
Gold Prod'n (000oz) Cash Costs (US$/oz)
Beacon Securities Ltd.| 66 Wellington Street West Suite 4050, Toronto, Ontario, M5K 1H1 |416.643.3830 |www.beaconsecurities.ca
Disclosure Requirements
Does Beacon, or its affiliates or analysts collectively, beneficially own 1% or more of any class of the issuer's equity securities? Yes No
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Does Beacon Securities beneficially own more than 1% of equity securities of the issuer? Yes No
Has any director, partner, or officer of Beacon Securities, or the analyst involved in the preparation of the research report, received remuneration for
any services provided to the securities issuer during the preceding 12 months?
Yes No
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this issuer in the past 12 months? Yes No
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Department? Yes No
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All information contained herein has been collected and compiled by Beacon Securities Limited, an independently owned and operated member of
the Investment Industry Regulatory Organization of Canada (IIROC). All facts and statistical data have been obtained or ascertained from sources,
which we believe to be reliable, but are not warranted as accurate or complete.
All projections and estimates are the expressed opinion of Beacon Securities Limited, and are subject to change without notice. Beacon Securities
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decisions based on the content of this report.
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their volatility, income structure, or eligibility for sale, the securities mentioned herein may not be suitable or available for all investors in all countries.
As at October 31, 2016 # Stocks Distribution
Buy 62 72% Buy Total 12-month return expected to be >15%
Speculat ive BUY 14 16% Speculat ive Buy Potential total 12-month return is high (>15%) but given elevated risk, investment could result in a material loss
Hold 3 3% Hold Total 12-month return expected to be between 0% and 15%
Sell 0 0% Sell Total 12-month return expected to be negative
Under Review 6 7% Tender Clients are advised to tender their shares to takeover bid or similar offer
Tender 2 2%
Total 86 100%
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