ASX:OBM
Ora Banda Mining Ltd
Investment Summary
The fund managers believe that Ora Banda Mining Ltd (OBM) is well-positioned for significant growth in the gold sector due to its strong operational performance and exploration potential. In their opinion, OBM has successfully achieved first ore from the Sand King project on schedule, improving cash flow by replacing low-grade stockpiles with higher-grade ore. Fund managers from Paragon highlight the impressive execution of its underground mining operations, particularly the Riverina project, which is experiencing substantial depth extensions potentially adding over eight years to mine life and increasing annual production to between 90koz and 150koz. They note that OBM is leveraging its strong free cash flow (FCF) to self-fund its growth and expansion plans, which aligns well with current market conditions. Moreover, despite recent share price fluctuations, managers see the valuation gap closing as OBM continues to de-risk its production and resource base. They view the company's exploration upside as compelling, anticipating strong FCF generation of $150m+ over FY25F as it moves towards stable production levels.
Commentary From The Managers
Paragon Funds
28 Feb 2025
$0.93
- Paragon Funds notes impressive execution in Ora Banda Mining Ltd's (OBM) underground mining operations and exploration efforts.
- OBM's share price has quickly recovered from a correction in late 2024.
- Current length of Riverina UG is 500-750m with significant depth extensions discovered.
- Estimated addition of 8+ years to mine life at current production of ~90koz p.a. gold.
- Potential increase in production to 120-150koz p.a. with strike extensions.
- New discovery at Little Gem ~2,500m south has similar characteristics to Riverina.
- Approved funding of $20m for exploration to test connection between Riverina and Little Gem.
- Riverina's resources limited by drilling; consistent operational performance noted.
- History indicates missed exploitation opportunities during previous gold bull cycles.
- Riverina appears to be an Orogenic gold system with great potential.
- Sand King, OBM's second underground mining operation, is ramping up with better than expected grades and recoveries.
- Steady-state production levels anticipated in June with a run-rate of ~60koz p.a. by July.
- Strong free cash flow (FCF) supports self-funded growth and expedited expansion plans.
- Peer companies trading at >2x OBM's FCF multiple, highlighting a valuation gap.
- Paragon Funds expects this gap to close as OBM demonstrates de-risked growth in production, FCF, and mineable resources.
Clime
31 Jan 2025
$0.83
- OBM has achieved first ore from Sand King on schedule
- The market remains focused on operational execution
- As OBM replaces low-grade stockpiles with higher-grade Sand King ore, we expect continued improvements in cash flow
- OBM is an improving, high-quality gold miner
- Managed by an experienced and capable leadership team
Paragon Funds
30 Nov 2024
$0.68
- Paragon Funds notes that Ora Banda has experienced a significant decline of -22%, affected by the recent correction in Gold prices and a sell-down by its largest shareholder, Hawkes Point.
- Hawkes Point sold 100 million shares of their 700 million holdings at 70 cents, indicating a short-term overhang.
- The decision to sell only 14% of their holding suggests that Hawkes Point, like Paragon Funds, sees considerable potential for future growth.
- Ora Banda is progressing towards becoming a mid-tier Gold market leader due to its exploration potential, strong self-funded production, and free cash flow growth outlook.
- While US$ Gold price volatility may affect short-term sentiment, the focus will be on the A$ Gold price (over A$4,000/oz) and Ora Banda's continued execution.
- Ora Banda presents an attractive risk-reward profile, trading at a modest EV/CY25F FCF of 6x at current A$ Gold prices.
Paragon Funds
31 Oct 2024
$0.94
- Ora Banda delivered an excellent 3Q24 result, exceeding expectations.
- Production, margins, and free cash flows (FCF) surprised positively.
- Commercial production started at Riverina underground mine on 1 August.
- Grade reconciliation at Riverina is well above Reserve grade.
- Sand King UG development is progressing and expected to reach commercial production in 2Q25.
- At current gold prices, Ora Banda could generate over $150m in FCF for FY25 and over $250m for FY26.
- A third underground discovery is anticipated, viewed as a matter of when, not if.
- Paragon Funds believes Ora Banda is well-led, attractively priced, and poised for organic growth.
- Small-cap gold stocks are trading at lower valuations compared to previous cycles.
- The current rally in gold stocks shows low duration and magnitude compared to historical trends.
Paragon Funds
31 July 2024
$0.44
- Ora Banda Mining has performed well for Paragon Funds, executing a successful high-grade underground gold mining strategy.
- Riverina, the first underground mine, is exceeding expectations with commercial production declared.
- Sand King, the second underground mine, has been approved for modest capex, with ramp-up expected in 1-2Q25.
- Self-funded 2-year outlook shows production CAGR of over 40% to reach 150koz in FY26 from these two mines.
- Cost guidance is better than anticipated, supporting a positive financial outlook.
- At current A$gold prices of $3,730/oz, Ora Banda is projected to generate substantial free cash flows of $80m in FY25 and $200m in FY26.
- Company maintains sector-leading organic production and free cash flow growth rates.
- Paragon Funds is encouraged by the company's commitment to an expanded exploration budget, indicating strong exploration potential.
- Riverina’s extensive strike is leading to plans for a second underground access point, potentially doubling mining rates.
- Market's appreciation of this next phase of production growth appears limited, despite a market cap of $850m.
- Currently trading at a modest 4x EV/FY26F FCF compared to peers at 2-3x these multiples.
- Exploration updates will address concerns regarding mine life, significantly enhancing market perception.
- Monetary demand for Gold is increasing with continued buying from central banks and a shift in global physical Gold ETF's to net buyers.
- Gold prices have increased +50% in this cycle, indicating room for further growth during potential rate-cutting cycles.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.