At the moment the answer to that most pertinent of questions remains a matter of conjecture. But it won’t be too long now before we have some more definitive answers. And recent drilling assays have certainly been cause to be optimistic.
Orsu’s Director of Exploration Dr Alexander Yakubchuk reckons Sergeevskoe could end up yielding somewhere in the range of 30mln-to-36mln tonnes of ore grading between 1.5 and 2 grams of gold per tonne. That nets out at a prospective target amounting to between 1.8mln and 2.5mln ounces of gold in hypogene and oxide material with likely further upside in the follow-on exploration programs.
It’s now up to Orsu to get on and drill the property and prove its case. It has more than US$6mln to do so, including the funds delivered from the sale last year of an old Kazakh copper project.
2018 exploration started
And so in May this year, the firm kicked off its 2018 exploration program and results so far have been highly encouraging.
The most recent assays announced in July extended the area of gold minerlization at what's called the zone 23 for 240m and also showed good grades
"Zone 23 is only one of the three drill zones that we are working on this year. I count that we meet a similarly exciting mineralization in the other two zones: adit 5 and Kluchi west, bringing us to an anticipated combined maiden resource of 1.8 [million ounces] to 2.5 million ounces of gold in our first maiden 43-101 resource statement," Yakubchuk had said.
"The results so far exceeded expectations in terms of both thickness and grades."
But for investors interested in getting in on the ground floor rather than waiting for the market to price in all the upside, there are several additional salient facts worth noting.
The first is that Orsu’s team is highly experienced. Founder and chairman Sergey Kurzin is an experienced minefinder who put some of Kinross’s biggest Russian mines onto the map.
Managing director Sergei Stefanovich was a director of strategy for Norilsk and a board member of Gold Fields (JSE:GFI), and is the man who brought the Sergeevskoe project into Orsu.
And the aforementioned Alexander Yubchuk managed exploration for Gold Fields in the Former Soviet Union, and has previously worked with BHP, Goldcorp, Gold Fields and several other major mining names.
What’s more, the non-execs are top-rank collection of Canadian and British corporate faces, like former chief financial officer of B2Gold Mark Corra and David Rhodes, one of the managing directors at well-known boutique finance house Endeavour Financial.
So these are people who know a thing or two about mining and who are more than familiar with how to get things done in Russia.
Add into that mix the location of Sergeevskoe, just 300 metres west of the 5.5mln ounce-plus Kluchi gold mine and 5 kilometres east of the 2.2mln ounce-plus Aleksandrovskoe gold mine, and the brew begins to look might tasty indeed.
Overall, the Mogocha mineral district in which Sergeevskoe lies, has thus far accounted for more than 18mln ounces of gold production.
And there will clearly be plenty more to come. China National Gold is now moving in to take over the Kluchi mine, and the mineralisation there comes right up to the license edge of Sergeevskoe.
So what are the chances that these two operations end up combining in the near future?
The answer is probably fair-to-very good, although it’s still early days for the Chinese at this project, and much work would need to be done first before either side would be in a position to sit around a negotiating table.
But the word is that the Chinese are looking to put a 300,000 ounce per year operation into production, and the thinking would have to be that at some stage they will come looking for more ore.
All that’s hypothetical and some way in the future, but it gives an indication of the prospectivity and levels of activity that Orsu is becoming a part of, following its exit from Kazakhstan.
The plan now is to move Sergeevskoe from concept to actuality by undertaking around 10,000 metres of drilling this year, alongside 2,000 metres of trenching. And metallurgical and other types of testwork remains ongoing.
Sergei Stefanovich is only too aware of the attractions of the Orsu project, but he is under no illusions that the company may still need to put it into production itself.
PEA on its way
And so, this year’s drilling should allow for the publication of Yakubchuk’s mooted resource by the end of this year, as well as a preliminary economic assessment.
“The PEA should come out strong,” says Sergei Stefanovich.
“We plan to deliver a 2.5mln ounce resource. And if we get this it would mean our discovery costs would be in the region of US$2.00 per ounce.”
Sharp-eyed investors will notice that that’s an almost unfeasibly low number, but the reason is simple enough. Sergeevskoe is a project that was previously explored. Much work has been done on it over the years, but the ground has been untouched since the 1960s. Arguably though, Sergeevskoe counts as a brownfield site, and any existing data, once checked, can just be rolled into any updated Orsu model.
And what of that fabled Russian risk that sometimes puts investors off? Sergei Stefanovich will have no truck with that. He recognises that there are political issues at the very highest level, but as far as economics and the business climate are concerned, Russia is very open.
He cites favourable rankings from the Fraser Institute and positive noises from the World Bank. Indeed, Fraser ranks Russia ahead of Mexico, Indonesia and even Nova Scotia and Alberta as a place to do business.
It seems inevitable that there will always be some sort of modest Russian discount, but with Orsu racing to move Sergeevskoe from a relatively blank page to a major resource in a matter of months now, the shares could re-rate dramatically anyhow, discount or no discount