Orvana’s Revises Guidance Due to Impacts on Orovalle Operation

(Orvana, 10.May.2022) — Orvana Minerals Corp. (TSX: ORV) reports consolidated financial and operational results for the quarter ended 31 March 2022 and announces revised guidance for fiscal year 2022 for the Orovalle operation to take into consideration the impacts caused by COVID-19 related absenteeism, delays in spare parts supply in Europe, the nationwide transportation strike in Spain, and rising annual inflation rates in Spain reaching near 40-year highs causing higher prices for energy, materials, supplies and services.

This news release should be read in conjunction with the company’s Management’s Discussion and Analysis, unaudited Financial Statements and Notes to unaudited Financial Statements for the corresponding period, which have been posted on the Orvana Minerals Corp. SEDAR profile at www.sedar.com, and which are also available on the company’s website at www.orvana.com. All figures are in U.S. dollars unless otherwise noted.

“Orvana has a well defined and clear strategy based on developing its three assets for the long term. In that sense we had an exceptional quarter, with very encouraging drilling results in Spain and Argentina, coupled with the successful completion of metallurgical testing and economic modeling in Bolivia. On the annual production side, we did have a challenging quarter in Spain as exceptional national, and continental, events, unfolded simultaneously, causing intermittent disruptions of operations and rising production costs”, said Orvana CEO Juan Gavidia. “Our Spanish operation’s amended guidance reflects the impact of the previous months, but does not affect our outlook of Orovalle’s performance in the medium to longer term. Spain continues to be the cornerstone of Orvana’s “organic growth strategy”, meaning free operating cash for the rest of the year is committed to create value through expanded mineral resource modeling for Spain and Argentina, and detail project engineering for Bolivia. The Company, expects to be in a favourable position by the end of this fiscal year to continue the development of its defined strategy of continued production and development of organic growth,” added Juan Gavidia.

Consolidated Financial Results and Operating Highlights:

  • Revenue of $21.9mn for the three months ended 31 March 2022 (“Q2 FY2022”) and $48.5mn for the six months ended 31 March 2022 (“H1 FY2022”).
  • EBITDA of negative $2.7mn for Q2 FY2022 and positive $2.4mn for H1 FY2022.
  • Capital expenditures (on a cash basis) of $4.7mn for Q2 FY2022, and $9mn for H1 FY2022.
  • $13.6mn of cash and cash equivalents as at 31 March 2022.
  • Orovalle:
    • Q2 FY2022 production was impacted by a multi-day operations stoppage caused by a nationwide transportation strike, in March.
    • Starting December 2021, Orovalle experienced the effects of the sixth wave of COVID-19 cases in Spain, despite the Company’s ongoing efforts to safeguard the health of the workforce. The wave reached its peak in January 2022, impacting workforce attendance levels. During this stressful period, the Company continued operating safely and responsibly, although with productivity challenges.
    • Gold production of 8,341 oz in Q2 FY2022, compared to 11,731 ounces in the first quarter of fiscal 2022 (“Q1 FY2022”). Production decrease was due to 17% lower tonnes milled and 15% lower head grade.
    • Copper production of 0.8 million lbs in Q2 FY2022, compared to 1.5 million lbs in Q1 FY2022. Production decrease was due to 17% lower tonnes milled, 31% lower head grade and 4% lower recovery.
    • 6,642 meters of infill and brownfield drilling.
    • 1,447 meters of greenfield exploration drilling.
    • 196.50 meters at 0.53 g/t Au grade were intercepted in greenfield Lidia Project.
  • EMIPA:
    • A new National Instrument 43-101 “Technical Report for the Don Mario Property, Eastern Bolivia” was filed on 15 March 2022. Highlights being its upside with the Oxides Stockpile Project (“OSP”) and the Tailings Reprocessing Project (“TRP”).
    • Don Mario continues in care and maintenance (“C&M”), transitioning to the OSP.
    • OSP has completed metallurgical testing with very satisfactory results in terms of recoveries and consumption of key OPEX items. Basic engineering for construction to define CAPEX levels is under way, as well as project financing.
    • TRP conducted 1,022.5 meters of infill drilling (82 holes) in Q2 FY2022.
    • During Q1 FY2022, mapping, geochemical and geophysical sampling were carried out in two previously unexplored areas in Las Tojas and Oscar sectors. During Q2 FY2022, the resulting data has been processed and analyzed in order to continue with fiscal 2022 exploration program.
    • During the second quarter of fiscal 2020, as a result of the suspension of operations, EMIPA implemented a labor restructuring process, which was managed in full compliance with the terms defined by applicable laws in Bolivia. Certain former employees of EMIPA affected by the restructuring process decided not to accept the dismissal terms provided for under applicable employment laws in Bolivia, and started a reinstatement claiming process at labor, administrative and criminal jurisdictions. Late April 2022, in relation to one of the files at the criminal jurisdiction, the Court issued a sentence determining the imprisonment of the General Manager of EMIPA for a period of four years. A legal complaint against the sentence was presented, and, on May 9, the sentence was invalidated. The restructuring process was carried out according to all the applicable local regulations. Considering the strength of EMIPA’s arguments and the evolution of the process as of today, the Company expects a positive outcome of the process.
  • Orvana Argentina:
    • On 29 December 2021 the company announced its updated Taguas Project preliminary economic assessment report (“2021 Taguas PEA”), which was filed on SEDAR on 11 February, 2022. Orvana retained SAXUM Engineered Solutions (Argentina), in cooperation with Kappes, Cassiday & Assoc. (Reno, Nevada, USA), and NCL (Chile), to prepare the report. The report was prepared in accordance to National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”). The 2021 Taguas PEA replaced a previous one dated 14 May 2019, and filed on SEDAR on 9 July 2019.
    • The 2021 Taguas PEA refers only to the oxidized gold-silver mineralization occurring near surface in Cerros Taguas, leaving the bigger Au-Ag-Cu sulfidic volume for a second developmental phase.
    • The company started an infill drilling campaign in late December 2021 to upgrade the mineral resource from the inferred category, and to realize its oxide mineral tonnage upside potential. As of 31 March 2022, 26 DDH holes totaling 4,210 meters had been drilled. The drilling program continues progressing and the company estimates to achieve a total of 6,500 meters by mid May 2022.

Consolidated Financial Results and Operating Highlights:

Consolidated Results

Q2 2022Q1 2022Q2 2021YTD 2022YTD 2021
Operating Performance
Gold
      Grade (g/t)1.942.272.312.122.47
      Recovery (%)91.591.290.991.392.4
      Production (oz)8,34111,73110,78520,07224,912
      Sales (oz)9,19911,4408,52320,63920,609
 Average realized price / oz$1,868$1,796$1,822$1,828$1,849
Copper
      Grade (%)0.310.450.470.380.55
      Recovery (%)80.783.782.382.681.9
      Production (‘000 lbs)7971,4511,3552,2483,399
      Sales (‘000 lbs)8881,5411,4752,4303,120
      Average realized price / lb$4.49$4.39$3.74$4.43$3.51
Financial Performance (in 000’s, except per share amounts)
Revenue$21,872$26,633$19,678$48,505$47,493
Mining costs$23,176$19,738$14,880$42,914$32,537
Gross margin($5,052)$2,899$1,746($2,153)$8,009
Net income (loss)($5,840)$405($818)($5,435)$1,101
Net income (loss) per share (basic/diluted)($0.04)$0.00($0.01)($0.04)$0.01
EBITDA (1)($2,740)$5,148$2,683$2,408$9,965
Operating cash flows before non-cash working capital changes($1,546)$5,101$3,446$3,555$10,940
Operating cash flows$153($1,016)($594)($863)$4,493
Free cash flow (1)($6,257)$845($449)($5,412)$4,638
Ending cash and cash equivalents$13,583$18,857$13,390$13,583$13,390
Capital expenditures (2)$4,711$4,256$3,895$8,967$6,302
Cash operating costs (by-product) ($/oz) gold (1) (3)$2,099$1,219$1,193$1,611$1,110
All-in sustaining costs (by-product) ($/oz) gold (1)(2)(3)$2,559$1,574$1,769$2,013$1,592
All-in costs (by-product) ($/oz) gold (1)(2)(3)$2,883$1,702$1,958$2,228$1,700
(1)This is a non-IFRS performance measure, see “Other Information – Non-IFRS Measures” section of the MD&A.
(2)Cash expenditures are presented on a cash basis. See the “Cash Flows, Commitments and Liquidity – Capital Expenditures” section of the MD&A. The calculation of all-in sustaining costs and all-in costs includes capex incurred (paid and unpaid) during the period.
(3)Unitary costs do not include one-time costs nor one-time severance charges.

Revised Guidance:

Orovalle’s production, revenue and costs suffered material impacts in the first half of fiscal 2022 due to:

  • COVID-19 related workforce absenteeism that resulted in lower productivity and production.
  • Lower fleet mechanical availability due to delays in spare parts supply around Europe, impacting both mine and plant efficiencies.
  • Operations shutdown in March 2022, due to an unusually severe nationwide transportation strike in Spain, that disrupted supply chains across all sectors, and regions, especially the highly industrialized north, where El Valle sits.
  • Regular level of indirect fixed costs, that given lower production, originated materially higher unit costs.
  • Higher prices for energy, materials, supplies and services. Spain’s annual inflation was 6.7% in December 2021, reaching a near 40-year high of 9.8 percent in March 2022. Fuel and electricity pricing were at the core of this phenomenon.

The above-mentioned operational issues are temporary and the company expects that they will not affect Orovalle’s performance in the medium to longer term. Actions are being taken to return to full operational levels, while continuing to manage outstanding risks related to COVID-19.

The conflict in Ukraine is causing significant economic and social effects, which are affecting all European countries. The Spanish Government approved in March an economic package to mitigate the impacts of the armed conflict. The European Union announced late April that it will allow Spain and Portugal to apply a limit to the gas price used in power generation for a 12 month period, with the gas price cap set at Eur50/MWh. Spain’s Central Bank forecasted early April consumer prices to surge 7.5% in 2022, but just 2% in 2023. The company expects that this inflationary scenario is temporary and will not affect Orovalle’s results in the medium to longer term in a material way.  The company’s strategy for the second half of fiscal 2022 is to manage its existing capital resources and liquidity in a prudent fashion while continuing to manage price hikes impacting our cost structure.

The company has assessed the impact of the above-mentioned circumstances, therefore adjusting its production and cost guidance for FY2022 accordingly:


Orovalle
H1 FY2022ActualRevised FY2022Guidance (2)Original FY2022Guidance (1)
Metal Production
   Gold (oz)20,07244,000 – 46,00048,000 – 53,000
   Copper (million lbs)2.24.8 – 5.25.8 – 6.5
Capital Expenditures$5,180$15,000 – $17,500$22,000 – $25,000
Cash operating costs (by-product) ($/oz) gold (1)$1,515$1,300 – $1,400$1,050 – $1,150
All-in sustaining costs (by-product) ($/oz) gold (1)$1,829$1,700 – $1,850$1,550 – $1,700
(1)Fiscal 2022 original guidance assumptions for COC and AISC include by-product commodity prices of $4.00 per pound of copper and an average Euro to US Dollar exchange of 1.17.
(2)Fiscal 2022 revised guidance assumptions for COC and AISC include by-product commodity prices of $4.50 per pound of copper and an average Euro to US Dollar exchange of 1.10, during the second half of fiscal year 2022.

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