February 12th, 2009

So, for my first stock-analysis I'll present an exploration company. I should warn you that my analyses of stocks are never too exhaustive, what I'm looking for are all the facts of a company that I need to decide if I'm buying or not; so it might not suit everyone. Anyway:

Like all other small exploration stocks OAR has taken a good beating and dropped from a high of 1.20 to 0.08 in only six months. The mcap is now about 2M CAD. The reason I got interested in this company in the first place was because one of the guys who made the great discovery of Aurelian Resources is involved. Other than that management looks pretty good with lots of experience, but of course that's no guarantee of any nice finds (or further financing). OAR has projects in Colombia and Ecuador; at this time the projects of Ecuador are in very early stages (and government in Ecuador is a little nuts), so therefore I will not go into detail on these. The main thing this company has is the Alto El Toro project in Colombia. The project is optioned (for mining and exploration) and requires payment of totally $10.25M over a three year period (20% has already been paid), as well as a contract to drill a total of 6000m (3000m already done). OAR has no signifacant debt at this time and a positive cash-position of about $1.5M. The Alto El Toro is a very interesting project, it consists of a couple of quartz-vein gold and silver mineralizations of a width of at most a few meters, the veins are open at depth and the main two veins are today measured at hundreds of meters of mineralized lengt with up to 3.4km of known fault-lines. What the company is looking at now is to expand the known mineralizations in all directions and to find new veins. The ore-grade is very good - average grade of recent sampling is at 19.4g/t gold and 40.6g/t silver. The area of the project has seen alot of primitive mining and some is still ongoing on the property, on a very small and insignificant scale. I would say that in comparison with other really cheap junior exploration companies, OAR definitely has one of the most promising exploration properties I've seen. From what I can tell from the recent drill-results, all they have to do is drill in vicinity of the known veins and they will find lots and lots of really great mineralizations. Management describes the potential of the property as 'excellent' and I couldn't possibly disagree. Sadly, with such a great project they still have to pay about $8M more to acquire it and then pay for more exploration. With the trouble of obtaining money these days there is a very strong reason to be worried if you are holding shares in this company. The only real chance that the Alto El Toro project will go all the way (and I think it can) is through a joint-venture with a larger mining-company. That's the most likely way they're going to get money for the project, a bank is not going to finance something they don't understand or with such a high risk. Further dilution by equity financing is possible, but then there's the dilution and again the problem of perceived risk by investors.

To sum it up, the main project of OAR is really really great ... but the market isn't. This is the reason why the company is valued so low and also the reason why you could lose all of your money - OR make lots of money if you're lucky. I'd say chances that OAR will get further financing is about 50%. But, as I said, if the financing is solved chances are very good for success.