Occam’s Razor and Orestone’s Resguardo

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Disclosure: The following represents my opinions only. I am not receiving any compensation for writing this article, nor does Hydra Capital have any business relationship with companies mentioned in this post. I am long ORS.V

I’m getting more and more incoming questions about Orestone Mining (ORS.V, last at $0.175) these days, which is a story that I’ve spent a fair bit of time digging into over the course of the past year. I want to be clear that ORS is a pure exploration gamble, in the absolute highest-risk category of the stock market. What I think of the target will not change what’s in the ground, but the only way to get that answer is to drill it now. With drilling about to begin, I won’t have to wait too long, but in the meantime I figure that I’ll lay out my most succinct view on the target in the discussion below. My summary includes a little more history on the evolution of this virgin copper-gold prospect, as I’ve finally filled in the gaps of “who-did-what-when” on this property. Generally, when I look around at the speculative junior mining market, the scale of the Resguardo target stands out as being something that I think is worthy of broader market attention, but that’s just me. At the end of the day, results are what matter. Everything before that is just speculative betting. 

The Resguardo story starts with shallow copper oxides (1-7% Cu + 0.5 g/t gold) historically being mined from surface down to a depth of about 100 metres via pits and tunnels. The mined mineralization was contained in highly altered, high-energy rocks (breccias/mantos and skarn), but the mineralization seemed to disappear at depth. Subsequent work by an ASX-listed operator called Castillo Copper in 2014 consisted of surface mapping followed by two (and only two) shallow RC holes drilled below the old workings. Those holes were drilled in the hopes of finding a breccia pipe at depth; down to a depth of 230m and 270m. Those holes were drilled without any geophysical work or data; they were simply two cheap holes to test for a breccia pipe under the old mine, full stop. The westernmost hole of those two was vertical, and found 10m of 1% copper, with 2m of 2.76% copper (link to the Castillo news release here), but it didn’t fit with the model of what Castillo was looking for (breccia pipe) so they dropped the property later in 2014.  Shortly after Castillo dropped the property, a company called Sociedad Contractual Minera Resguardo (“CMR”) figured that it might not be a bad idea to run some IP lines near the mine workings to try to determine if the source of the mineralization might be hidden nearby at depth. CMR ran three IP lines, spaced 1km apart, which identified the presence of the Resguardo IP anomaly for the first time. With that encouraging IP data in hand, CMR looked to find someone else to advance the project through an option agreeement, which is where Orestone came onto the scene in 2018. Orestone picked up the option from CMR (link to Orestone’s 2018 press release) and went on to do some surface mapping/recon as well as an infill IP survey over the anomaly consisting of four two-kilometre-long lines at roughly 400m spacing (link to a discussion of those results here). That’s when the Reguardo target as I know it was really born; in late 2019. I’ve shown the IP target below in plan view as presented in Orestone’s corporate presentation (note: in the interest of minimizing the number of pictures needed to illustrate the target, I have added the “oxide mine workings” ellipse to reflect its general position as indicated on prior slides in the ORS corporate slide deck):

The target presents as a 1100m long by 300-to-600m wide IP anomaly at about 200 metres depth using a 20 mV/V cutoff, located just to the west of the old mine workings. For those that don’t know, that’s a big target. The historic vertical hole drilled to a depth of 270m by Castillo (in 2014) was on the outer margin of the IP anomaly (see below), but intersected 10m of 1% copper, with 2m of 2.76% copper in a higher-grade zone at around 110 metres depth. That’s some pretty good “smoke”. Unfortunately, Castillo had no idea there was an IP anomaly there at the time and that they were on the outer edge of it. Had they known about it, I sincerely doubt that they would have dropped the property without testing that target. Plotting the Castillo holes on top of the nearest IP line shows that the drilling was into the 10 mV/V halo of the anomaly and clearly peripheral to the core. See below for an IP cross section showing the old Castillo holes (the two black lines). There is also an indication of what a proposed ORS hole would look like on this particular section (black and white alternating line) in order to properly test the upper portion of the anomaly. 

“Missed it by that much?”  

To put it bluntly, these are the targets you want to drill in the exploration business. The cost of drill testing is low (~C$300,000 for an initial RC drilling pass down to 350 metres or so in 3-5 holes), and the supporting data is strong. There’s shallow mineralization with an unexplained source, there’s an economically-interesting intercept of copper mineralization grading up to 2.76% over a respectable interval on the periphery of the now-well-defined IP anomaly, there’s evidence of moderate alteration at surface indicative of hydrothermal (hot fluid) activity, there are are copper oxides leaching out of fractures at surface over top of the IP anomaly, there are faults in the immediate area, and the whole property is located in a broader area that sits at the intersection of two regional-scale structural trends known for producing large copper-gold deposits. To really drive the point home, read this history of the discovery of Candelaria. Did you read that? Does it remind you of anything you’ve seen recently? That’s because the set up before the discovery of Candelaria was nearly identical to the set-up at Resguardo today. In that discovery story, there were historically-mined surface copper oxides without a known source, a shallow hole that hit something interesting (2m of chalcopyrite mineralization), followed by an IP survey that showed a big anomaly nearby that turned out to be Candelaria.

With Resguardo IP target now on the cusp of being drilled for the first time, Orestone’s market cap is currently less than $7 million. Is that too high or too low? I have no idea. I look around the junior market and see A LOT of companies with $15-20 million market caps with little more than hopes and dreams of having a target with the quality, zip code, and scale potential of Resguardo. The risk is exceptionally high, but I find myself in an Occam’s Razor situation these days in my thinking on this one… the simplest explanation is that the IP anomaly, when considered in the context of the other observations that I’ve laid out above, represents the source of the copper oxides historically mined at surface. What else would the IP anomaly be doing there if it didn’t have to do with the mineralizing system? Is it just a coincidence that it’s there? Hmmmmm.

Whether or not Resguardo turns out to be a textbook discovery story, or just another flop in a long line of disappointing dreams from the junior mining sector, is impossible to know right now. That’s the nature of exploration and speculation. I think that if the market really appreciated the nature of the Resguardo target, the shares might be a lot higher, but the story is lightly followed and management has a pretty low profile when it comes to the Street. I’m okay with that, because if Resguardo hits, they’ll have plenty to talk about and plenty of people will listen. I live for this stuff. In the meantime, I hope I’ve framed the picture as best as I can for those who are looking to understand the nature of this high-risk “bet”. There’s no doubt that this is a real shot at a huge target, but it is still a shot in an industry that fires a lot of blanks. Here’s hoping Orestone has a copper-gold bullet on its hands at Resguardo… because if they do, the leverage to discovery here could make for quite a show.

Time will tell.