Ovoca Gold - A Golden Opportunity


Ovoca Gold Logo
Ovoca (LSE:OVG) is looking a very interesting prospect - its share price has dropped off a cliff since January 2011, but it now looks like it is ready to recover and potentially prosper. Ovoca is a gold exploration and development company with flagship interests in Russia. Ovoca is up just short of 10% over the past week, but looks poised for gains in coming months. The company is currently valued at just over £10m and has only ~87m shares in issue.

Ovoca's share price currently stands at 11.5p. This is comparable with peaks of nearly 80p achieved during 2008 just before the financial crisis after which the share price bottomed above 8p. The share price certainly is not hinting at a fall back towards those levels, but rather a move up in coming weeks/months as investors regain interest. This has already been signalled by Friday's move which led to it rising by ~8%. At one point Ovoca was up 2p equating to a near 20% rise, but this was halted with some existing investors selling out. It does highlight the potential for an upward move nonetheless. The share price is down 60% over a 52 week period.

Ovoca's share structure is also interesting at collectively the top three directors holdings total almost £4m - a substantial figure albeit some of these are through companies. The only directors trades of interest are that of the former CEO Timothy McCutcheon who left the company to 'pursue other business interests'. Therefore not too much can be implied from these. However, there are a number of institutions holding shares. According to digitallook these holdings total 39.2m equating to just under half the shares in issue with new institutions becoming interested in Ovoca in recent months. Moreover adding the three directors holdings totals another ~35m shares. Based on this, it appears that 74m shares are held away from the market and only 13m are actually available for purchase. This makes Ovoca fairly illiquid. Clearly, whilst private investors have forgotten about Ovoca, the institutions have been quietly building up their stakes making themselves well placed to capitalise on any gains.

Ovoca has two main projects in Russia following its disposal of one of its projects in 2009. They were effectively 'forced' to do so due to the low silver price at the time. However, even this was a success as the asset sold for a premium over the entire market cap (sold for $48m). Ovoca's current projects are located in the Magadan region and are entitled Rassoshinskaya and Stakhanovsky. The Magadan region is located in northeast Russia and is characterised by a mountain range. As with most Russian projects, the weather can be an issue with way below freezing temperatures most of the year round and with typical snow cover from October to May.

In terms of access Rassoshinskaya has poor infrastructure hence is only accessible through off-road vehicles/helicopters whereas Stakhanovsky is the more developed location with infrastructure present.

copyright mscaprikell
Within Rassoshinskaya there are four main districts which include gold mineralisation throughout, but with varying other ores including silver and quartz. The company believes there is the potential for a multi-million ounce gold resource at the 'Olcha' deposit here with numerous 'satellite deposits' present. These are deposits located further out that link back to the original deposit.

The Stakhanovsky ore field is located in the Susuman district within the Magadan region. The licence area is 40 kilometres to the North of the district capital Susuman and can be easily accessed by gravel roads. Susman is the main regional town and is situated at the confluence of the Susuman and Berelyekh rivers. Over 20km of gold bearing igneous rock has been projected here hence the upside potential is significant. With gold prices continuing to rise (currently circa $1800/ounce) and with quantitative easing programs increasing across many economics, many analysts believe that they may even reach $2500/ounce during 2013 which would further boost the worth of these assets. Assets alone, Ovoca looks very cheap, but this will become even more apparent later in the article.

Without doubt part of the reason for the static price movement of Ovoca through 2012 has been due to a lack of news filtering through from the company. To date, only fourteen RNS' have been released in 2012, many of which have little significance. Thus it is not surprising to see that Ovoca is completely off the private investor radar following its share price collapse around a year ago.

The first RNS of the year came in early February in the form of the Rassoshinskaya 2011 fieldwork results. The results 'warranted further investigation' with discoveries of gold/silver mineralisation in two of the districts having drilled twenty surface trenches. The top drill results were:
- 10m at 7.9 g/t gold and 10.9 g/t silver on Podgorniy (a district)
- 1m at 14.2 g/t gold and 121.0 g/t silver at Zet (a district)
- 4.0g/t gold and 861 g/t silver at Maliy (a newly discovered area)
The company had also appointed a geologist and a new Head Geologist from firms Kinross and Barrick Gold respectively.
copyright BullionVault

A second RNS came a few days alter in the form of a share reorganisation including three companies controlled by directors. This led to the three directors effectively having an interest in the same number of shares. In April the Olcha lead had an exploitation license granted for 25 years. This allows them to drill any prospects and makes the entire license more valuable in terms of a sale. Ovoca paid $3m under previous contractual terms. The State-certified reserves equal 279,000 ounces of gold at a grade of 13.4 g/t and 655,000 ounces silver at a grade of 31.6 g/t in the Russian reserve category C1 + C2 (this is not JORC compliant and not reviewed by a Competent Person). The Company, as per the license terms, must begin construction of a mine no later than 3 October 2020.

The first financial statement was released in mid-April. The 2011 Annual Report failed to spark any share price progress though. By this point it stood at just over 20p/share. Net income was down on 2010 at £3.39m(2010:£3.672m) and cash and cash equivalents stood at £22m - this was level with the market capitalisation at the time. Updated JORC Inferred resource for Olcha of 9.2mn tons to give 650,000 ounces gold at 2.20 g/tand 3.59mn ounces silver at 12.12 g/t (cut-off grade 1.0 g/t gold). What does make Ovoca stand out from the crowd in one respect is that is one of a few small companies that has completed a share buyback program using its cash reserves. This proves that the company cares about its investors - a significant positive going forward.

Former CEO Timothy McCutcheon said: “You may note that our annual report for 2011 is coming out in the beginning of April. This is the latest outward sign of the turnaround in Ovoca that has taken place over the past three years. New management both operationally and at the board level, new assets, a complete clean-up of our corporate structure, sale of non-core assets and a new level of dialogue and connection with our shareholders are all the result of hard work to make Ovoca better."
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The report highlighted the successes and failures in 2011 including delays that combined with extreme weather had set back Ovoca's plans by almost an entire year at Stakhanovsky. Ultimately, unforeseeable weather conditions will always be a part of Ovoca's operations. In addition to this Kirill Andreyevich Golovanov was promoted to a Non-Executive Director position. Little less than a month later he was instated as CEO of the company, taking over from Timothy McCutcheon. As noted earlier, on leaving the company he sold his shares.

In July came the next operational update - this is when work activity is taken up a level to capitalise on the milder weather conditions (which included a summer heatwave this year supposedly due to global warming) . Results from work at both projects were released which included some impressive results for gold and gold/silver mineralisation which were then confirmed by another operational update in late August. As a point to watch, an outside firm is planning an updated resource update which should show resources grow significantly with the uncovering of new deposits and extension of existing deposits. This could spark interest back into Ovoca.

However, it was the interim financial report last Friday that really highlights the undervalued nature of the company. Not only is a large proportion of its shares not in public hands, but it is trading at a significant discount to its cash, equivalents and available for sale financial assets. As of June 30th this stood at $36.6m which is equivalent to around £22m. Moreover, just cash and cash equivalents stood at around £16m. This means the firm current has its market cap at two thirds its cash reserves PLUS all the assets are thrown in free. Ultimately, this means that Ovoca is a very attractive takeover target.

In simple terms, the main reason why Ovoca is trading at this level is due to weather-based disappointment in previous years. The assets are sound, the management is determined to create shareholder value and funding is not an issue (how many times can that be said for AIM stocks?).

GECR (Growth Equities & Company Research) issued a buy on Ovoca when it was trading at 19.5p/share with a target of 41p stating that it was 'obviously undervalued'. Compounded with another 50% fall it is clear as day that Ovoca should have a much higher share price and the financial update on Friday may be the catalyst the company needed in order to catapult it higher. As noted by GECR, 'Ovoca is a well-funded gold explorer and mine developer with a proven track record of creating value and could form an awfully attractive ticket to enter the Russia gold industry.'


  1. Brilliant write, I will watch ovg carefully tomorrow and buy on strength

  2. Thanks very much


  3. keep it up its very interesting 2 read

  4. or perhaps it is so lowly valued because:

    (1) Russian directors do very shady deals to transfer private assets to an AIM listed company in return for real cash
    (2) CEO was tired of the sharp practice and left, selling his entire holding because even he couldn't trust his former colleagues
    (3) The remaining cash and equivalents will be burned on commercialising those exploration assets

    Article written with very rose tinted glasses if you ask me (or Tim McCutcheon)

    1. I have held Ovoca for a while and I am not happy with the share price performace but it looks like it may rise. However:

      (1) Does not exist - I have gone through the Annual Reports also. Nothing of the sort found. I suspect that is a disgruntled response
      (2) Guesswork. If he says he wants to go on other business ventures, then good luck to him. He is quite young. There is no stipulation that he has to keep his shares.
      (3) Guesswork. The company is not known for excessive cashburn. That cash pile should last for a few years at least. Id bet they are taken over by then

      Good article - balanced as the risk is the weather which was pointed out.


  5. Is the last post by Tim himself?!

    An interesting read which has triggered me to keep a close eye on this company...thanks!

  6. Pretty good analysis but -Russia, Russia, Russia.
    Trust no-one!

    By all means take a punt, presently it is a trading share, it will certainly rise from here but be sure to take targeted proits and never take your eyes from it.

  7. Would you do a piece on Vectura (VEC)
    Would be much appreciated

  8. The strong rumour was that the board fell out and dumped McCutcheon. He left and immediately sold all his shares at pretty much the all time low share price - at, indeed as you say, a large discount to current cash equivalent assets. This is the guy who was running the company and must know a lot about it. Now I know that digruntled ex-board members do tend to sell their holdings fairly quickly, but if you look into his background it's unlikely he needed the money so it wasn't a forced sale (he's shifted pretty quickly into CEO position of Abzu gold, so he's okay for cash flow). It's my major concern here and the reason I haven't added at this low price, the guy was definitely in the know and yet he sold a signifcant amount at a price that was below current assets, I mean even if he figured the goldfields were undevelopable or something, why would he sell out at below current cash equivalent. It troubles me deeply here (I have a current position here).

    1. The flipside is that he (oddly enough) has the CEO position of Abzu secured prior to resigning. Which probably indicates that the reason given was true. It woul be a different story if he had no other job lined up. There are a multitude of reasons why he may have needed the money/wanted to move on.

  9. The value of cash, receivables and investments (which have been steadily sold down) have fallen as follows
    June 2009: £47.1m
    June 2010: £35.0m
    June 2011: £30.3m
    June 2012: £23.7m ...or £14.4m net

    That net figure is after subtracting the $15 million (£9.3m) owed to the 3 Russian directors on production. If preferred this liability can be ignored by subtracting $15m from the cash figure. The current burn rate would then leave an estimated £7m net cash left by next June.

    The way the acquisition was structured looks questionable with so many millions going to the directors for what were very early-stage assets, particularly the contingent payments. The ease in which cash has slipped into the pockets of connected parties ensures the market views this listing with a large amount of cynicism

    $2.5 went to contractors for previous work (about fair value for the assets)
    $4.5 million cash went to Mr Mogutov (Chairman)
    $3 million cash went to Mr Radchenko (non-exec)
    $3 million cash went to Mr Skoptsov (non-exec)
    They got a further $3m on awarding of license and as mentioned above will share $15m on production