O3 Mining (OIII) - Smart Investors Know That Fundamental Value Matters

O3 Mining Inc (formerly Chantrell Ventures Corp.), an Osisko Group company is a gold explorer and mine developer. The company is well-capitalized and owns a 100% interest in all its properties (137,000 hectares) in Quebec. The company is focused on delivering superior returns to its shareholders and long-term benefits to its stakeholders.

Merlin-Marr Johnson caught up with Jose Vizquerra, President, CEO, and Director, O3 Mining. Prior to his appointment with O3 Mining, Mr. Vizquerra was Executive Vice President of Strategic Development for Osisko Mining Inc. He joined the company from Oban Mining Corporation, where, as President and CEO, he played a leading role in the combination of Oban, Corona Gold Corp, Eagle Hill Exploration Corp, and Ryan Gold Corp. to form Osisko Mining. Through ambitious drilling and prudent capital raising, Osisko Mining has become the highly valued proponent of the world-class Windfall gold project. Before that, Mr. Vizquerra was Head of Business Development for Comañia de Minas Buenaventura. Previously, he was a production and exploration geologist at the Red Lake gold mine in Ontario. He currently serves as a Director of Osisko Mining, Sierra Metals Inc., and as an advisor to the Boards of Discovery Metals Corp, and Palamina Resources. The Young Mining Professionals recognized him as one of their Young Mining Professionals of the year with the 2019 Peter Munk Award. Mr. Vizquerra is an alumnus of the General Management Program at the Wharton School of Business. He holds an M.Sc. in Mineral Exploration from Queens University and a B.Sc. in Civil Engineering from UPC Universidad Peruana de Ciencias Aplicadas. He is a Qualified Person pursuant to National Instrument 43-101. 

Company Overview

O3 Mining is a gold explorer and mine developer ready to produce from its highly prospective gold camps in Quebec. The company is listed on the Toronto Stock Exchange (TSX-V: OIII) and the OTC Markets (OTCQX: OIIIF). ORCan Oilfield Services Ltd. and Harricana River Mining Corporation Inc., O3 Markets Inc., and Niogold Mining Corp. are the company’s subsidiaries. It is headquartered in Toronto, Canada. O3 Mining is a multi-million-ounce gold company with assets in Val-d’Or, Quebec, one of the best mining jurisdictions in the world. 

Market Landscape

According to the company, the 2020 market sentiment was much better as different companies were peaking and gold prices were higher. It anticipates that gold prices may experience a bump as 2023 approaches. The company has observed a similar trend with its own stock, where the share price peaked in 2020 and is currently at its lowest level in the past 2 years.

In the current environment, equities are moving together with the gold price. At the time when the gold price was at its peak, the equities were going higher. There is a correlation between gold and equities because as the former was trending lower, different equities traded lower as well. The increase in interest rates by the FED is expected to have an impact on global economics, which, in turn, would be reflected in the gold price.

O3 Mining is trading at an enterprise value of $15M-$20M, depending on the day. It is in a position to buy cash with the upside of one of the better deposits in Quebec’s Val-d’Or region. From a contrarian perspective, the current time is ideal for buying into O3 Mining’s assets to maximize value as the gold price goes up. Cash is king in the current environment.

Ongoing Operations

O3 Mining has slowed down its drilling program in order to conserve cash. The company originally had plans to drill 84,000m throughout 2022. The program was intended to convert the resource from inferred to M&I (Measured and Indicated) along with a PFS (Preliminary Feasibility Study), which was completed by November. Currently, the company is moving toward a Feasibility Study. It has plans to expand the drill operations in order to explain to investors that the PFS is simply part of building the base.

O3 Mining has 10 years of production, averaging 160,000oz/year. This leads to a $463M NPV (Net Present Value). If the company has additional inferred resources, it would need to mine for the next 2 years in order to move the NPV from $463M to $700M. The company’s current focus is on expanding its resource. It is highly conscious of cash scarcity, and as a result, it does not have an aggressive budget in comparison to the previous years.

Interestingly, when a company adds mine life to a project, the future cash flow gets heavily discounted. However, as per the company, this happens after year 15, but the difference between year 10 and year 15 is quite substantial.

According to the company, there are mid-tier producers that are looking to pick up long-life assets. Within the Val-d’Or region, Gold Fields acquired Yamana Gold. The buyout process is expected to complete within the next 2 weeks. In this region, movement is largely seen within the large-cap to mid-tier producers. This effect is expected to trickle down to juniors as well.

In Val-d’Or, there are two major companies that are operating near O3 Mining’s land package. The first is Agnico Eagle, which recently finished a deal with Kirkland Gold. The former is interested in moving all the needed pieces in place in order to get back on track. Gold Fields is currently in the middle of a takeover by Yamana Gold.

While the company is open to a potential M&A (Mergers and Acquisitions), it does not plan to wait. Instead, the company is focused on executing its plan to put the asset into production by 2026. O3 Mining anticipates that once the asset is de-risked, there could be a change in value ascribed to it. Acquiring permits for mining projects can be one of the biggest challenges. In Quebec, permits can take some time, however, there’s a set procedure to follow. Mining permits place a company in a different position, as it can discuss financing plans with different banks. Furthermore, permits also attract attention from other players in the market.

Having a PFS in place has led to conversations with different financiers along with major companies that have shown interest in the project. The companies that are already in production appreciate de-risked assets as well.

O3 Mining is cognizant that is currently on the Lassonde curve. In a case where the company makes a new discovery, it will shift the curve in its favor. There is also a possibility that a major intermediate company might end up acquiring it.

A smart investor understands that a company’s fundamental value matters and that cash is king. O3 Mining has a healthy cash flow along with very good ounces in one of the best jurisdictions in the world. Even if the company ends up being acquired at a 40%-60% premium, investors have little to lose. 

To find out more, go to the O3 Mining website