Donnerstag , 18 April 2024

Orecap Invest: Small but smart dealmaker in the commodities sector!

Orecap Invest is a small but excellent Canadian company that focus on “special situations” in the commodities sector. The share price has risen by around 50% so far in 2024. The company is benefiting from difficult financing markets and the low valuations of smaller commodity companies.

Orecap Invest: money and know-how!

The business model of Orecap Invest (C$ 0.05 | TSXV: OCI), which was still called Orefinders until May 2023, is complicated at first glance, but actually quite simple. On the one hand, Orecap buys attractive properties when they are offered at a bargain price in weak capital market phases. The projects are defined more precisely through exploration and then optioned out to a financially strong partner or floated on the stock market as an independent company. Secondly, Orecap helps with money, know-how and contacts when a mining company is in difficulties and receives shares in return.

The Ore Group

One visible result of these activities is the Ore Group, a group of exploration companies that are linked to Orecap in terms of personnel and/or capital. They also appear together on YouTube. The current members are: QC Copper & Gold (copper in Canada), Baselode Energy (uranium in Canada), Mistango River (gold in Canada), American Eagle (copper and gold in Canada), Metal Energy (lithium and nickel in Canada), Awalé Resources (copper and gold in Côte d’Ivoire) and privately held Cuprum Corp (copper in Canada). German investors will soon be able to take a closer look at QC Copper & Gold. The company will be presenting at the conference Deutsche Goldmesse on May 3rd & 4th in Frankfurt.

The investments at a glance

Orecap currently holds stakes in four of the listed Ore Group companies: Mistango River (13.9%), QC Copper & Gold (2.9%), American Eagle Gold (9.9%) and Awalé Resources (13.3%). As at March 20, the market value of these investments amounted to C$ 12.067 million. In addition, there is the 42.7% stake in Cuprum (purchase price: C$ 1.5 million) and four exploration projects in Canada.

Since the company was founded, Orecap has invested a total of C$ 7.28 million in seven companies. The realized or as yet unrealized capital gain is an impressive 254%. This is remarkable in this market environment, which is difficult for small commodity companies. There were three spin-outs. Shares from the investment portfolio were distributed to Orefinders shareholders. These were the shares of Baselode Energy (price gain as at 8.1.2024: 703%), American Eagle (457%) and QC Copper & Gold (287%).

A hungry team with well-known partners

Stephen Stewart Orecap Invest Gold Copper
Chairman and CEO Stephen Stewart is hungry and willing to take risks. Photo: Orecap Invest

Orecap Invest itself has a market capitalization of just CAD 11.2 million. And yet it has achieved a great deal since the company was founded in 2011. This is only possible with the right people. Chairman and CEO Stephen Stewart is still a relatively young entrepreneur who practically grew up in a mining household. His father Alex Stewart worked for more than fifty years as a commercial lawyer specializing in mining companies. He helps the company as a board member. Stephen Stewart prescribed himself a relatively modest salary as boss. But he also said in an interview: “My goal is to increase my money tenfold, twentyfold or fiftyfold.” As one of the younger mining managers, he still has enough time for this and obviously enough drive and hunger. Unfortunately, many managers in the ranks of junior companies are already very old.

Director Charles Beaudry is a geologist in active retirement who previously worked for Xstrata, which later merged into Glencore. Gerry Brockelsby, a renowned investment banker with 45 years of experience, recently joined the team. It is therefore no wonder that Agnico-Eagle (9.9%) and Eric Sprott (9%) are anchor shareholders in Orecap Invest. There are also interesting partners: mining giant Newmont joined Awalé Resources as part of the rescue operation. Teck Resources is American Eagle’s largest shareholder with a 19.9% stake.

Failures were not absent

Every success story has its failures. This is also the case with Orecap Invest. When the company was still called Orefinders, three properties near the Macassa mine were optioned to its direct neighbor Kirkland Lake Gold. From their perspective, the deal made sense: Macassa is one of the most profitable gold mines in the Abitibi region of Canada, and was hugely important to Kirkland Lake Gold. Agnico-Eagle took over Kirkland Lake Gold and had completely different priorities. The deal was terminated by mutual agreement in early 2024. The three projects reverted 100% to Orecap – and are now waiting to be exploited by another partner. After all, Orecap Invest “secretly” bought the third-largest exploration area on Ontario’s side of the Cadillac Trench between 2015 and 2020. There should be enough other interested parties.

After the spin-out, American Eagle explored a promising project in the US state of Nevada, very close to Nevada Gold Mines (a joint venture between Barrick Gold and Newmont). However, the results fell far short of expectations and the share price collapsed. American Eagle acquired the NAK copper-gold project in Canada via Orecap – and its first drilling results then brought great success. There was one day when the share price jumped by over 500%. After selling its coal activities to Glencore, Teck Resources seems to have made the right move towards copper by acquiring a 19.9% stake in American Eagle.

Active in Africa and Ontario

The rescue of the over-indebted exploration company Awalé Resources and the purchase of a 42.7% stake in Cuprum were the last two major deals. Awalé got a new CEO in veteran Andrew Chubb, an economic geologist with experience in Africa. Orecap Invest repaired the badly battered balance sheet in cooperation with Newmont Ventures. Stephen Stewart and Charles Beaudry, Orecap’s senior geologist, joined the Supervisory Board. This was good for the company’s share price.

TSX Venture Junior Miner Gold Copper TSX
The price performance of small junior miners has been poor over the past three years. In principle, there have only been two short bullish phases in the past 13 years. Higher interest rates caused the crash in the recent past. Orecap Invest takes advantage of low valuations or invests in stumbling companies. Chart: Presentation Orecap Invest.

With the 42.7% stake in Cuprum in Ontario, a significant share in Thierry, the second-largest copper project in the eastern part of Canada, was acquired in September 2023. Copper was mined here from 1976 to 1982, after which production was discontinued due to the low metal price. There is a preliminary economic assessment (PEA) from 2021 for an underground operation. An IPO of the company is also planned for 2024.

Conclusion: In relation to the market value of the individual components, Orecap Invest is undervalued. If you like, you get certain projects and the management for free. But who is the share suitable for? First of all, for anyone who wants to invest in junior mining stocks but does not have the know-how or time to select their own shares. What Orecap Invest is doing is certainly walking a tightrope, albeit successfully so far. Nevertheless, their strategic approach is certainly more promising than gambling with small explorers. The ideal investor is probably the high-net-worth investor who wants to diversify an opportunity-oriented portfolio and is happy to leave this work to the professionals.

 

Please note: Investments in the capital markets are associated with a high level of risk. Investors can lose all of their capital – and more. Remember to do your own due diligence! The content of this website is intended exclusively for readers who are permanent residents of Germany. The German disclaimer applies (see below).

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Graphics: Das Investor Magazin, Pixabay

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