I recently took another look at Oroco Resource Corp. after getting five separate inquiries about the Mexican copper developer over the holidays. Oroco is drilling out their Santo Tomas copper deposit on the border of Sinaloa and Chihuahua provinces, but it’s probably best known as the only mining stock owned by a prominent Youtuber. As a result, OCO.V has a cult following and retail shareholder base that I suspect doesn’t understand how mining works in Sinaloa.
The bull case I get can be boiled down to “a major will buy Oroco because …”
- Large land package
- Low copper grades, but it contains a minimum of 10 billion pounds of copper
- Can be put into production quickly and cheaply
- Infrastructure is already in place, including roads, power, water and a deepwater port.
As some of you know, I have some first-hand experience in Northern Mexico (mostly Hermosillo, Sonora and Baja). None of the bullets above reference current conditions on the ground.
Sinaloa has been in the news because of the arrest of Ovidio Guzman, the son of jailed drug lord “El Chapo” Guzman. In response the Sinaloa drug cartel has turned multiple cities into a war zone, killing dozens and trapping tourists. I dropped a few pins on a Google Map:
- The red pin is Choix, and roughly approximates the location of Oroco’s Santo Tomas deposit.
- The green pins are Matzalan, Culiacan and Ciudad Obregon, where the cartel is currently fighting security forces, planes have been fired upon and airports shut down.
- The gold pin is my favourite. It’s the approximate location of McEwen Mining’s El Gallo gold mine in Sinaloa near the Sierra Madres. El Gallo was robbed in 2015 of $8.5-million of gold concentrate.
During my time at BNN, the only segment to cause an international incident was Andy Bell’s interview with CEO Rob McEwen about the robbery. McEwen said the quiet part out loud – his company regularly communicates with the cartel so it can operate peacefully. He walked the statement back a few days later, but if we’re being honest he just acknowledged publicly what was common knowledge and is still happening today.
A major isn’t touching Santo Tomas, and when it’s sold there will be a discount attached to the sale price. Even before Ovidio Guzman’s arrest, the cartels were splintering and becoming more violent.
So why bet on an Oroco buyout when there are so many other copper deposits with (much) better grades in (much) better locations that aren’t a CSR, ESG and operational nightmare? Rio Tinto bought Turquoise Hill (Mongolia), invested in Western Copper and Gold (Yukon) and also took a stake in Regulus (Peru). That should tell you something about Oroco in the buyout pecking order, and it’s not like permitting is a slam dunk these days either with AMLO.
Oroco is a pass for me on opportunity cost alone.
