South Railroad Development And Exploration Success Will Drive Powerful Long Term Upside Potential

Catalysts

About Orla Mining

Orla Mining is a growth focused gold producer advancing a diversified portfolio of open pit and underground projects in North America.

What are the underlying business or industry changes driving this perspective?

• Ramp up of higher grade stopes and better material handling at Musselwhite, combined with underutilized mill capacity, is poised to lift throughput and production volumes, supporting higher revenue and stronger earnings leverage to the current gold price.
• A multiyear deep directional drilling campaign at Musselwhite, already returning high grade intercepts well beyond current resources, is expected to materially expand the resource base and extend mine life, underpinning sustained free cash flow and improved net asset value.
• Advancement of South Railroad toward a final Record of Decision and construction start, together with a shift to an owner operated crushing and mining model, should add a large, low cost Nevada heap leach operation that boosts consolidated production and widens operating margins.
• Progress at Camino Rojo on permits for pit expansion and an underground exploration drift, supported by increasingly constructive regulatory and government engagement in Mexico, positions Orla to transition to a larger, longer life operation that enhances revenue visibility and long term earnings power.
• Strong balance sheet liquidity, record free cash flow and the ability to self fund South Railroad while accelerating debt reduction create capacity for disciplined capital deployment, which can translate into higher per share earnings and potential future dividends.

Assumptions

This narrative explores a more optimistic perspective on Orla Mining compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Orla Mining's revenue will grow by 31.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 7.0% today to 54.8% in 3 years time.
• The bullish analysts expect earnings to reach $960.6 million (and earnings per share of $3.23) by about December 2028, up from $53.7 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $835.1 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 11.9x on those 2028 earnings, down from 91.9x today. This future PE is lower than the current PE for the CA Metals and Mining industry at 21.9x.
• The bullish analysts expect the number of shares outstanding to grow by 5.42% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.33%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Execution and geotechnical risk at Camino Rojo, including the recent pit wall failure and the need to mine from the top down at lower slope angles, could structurally increase strip ratios and sustaining capital, compressing all in sustaining margins and lowering net income over time.
• Heavy reliance on multiyear exploration success at Musselwhite and across the South Carlin complex to fill underutilized mill capacity and extend mine lives may not translate into economically mineable reserves at scale, limiting future production growth and constraining long term revenue and earnings expansion.
• The South Railroad build, which depends on timely federal and state permits and a tight construction schedule, could face regulatory delays, cost inflation or execution setbacks, pushing out first gold and raising capital intensity, which would reduce free cash flow and pressure the balance sheet and earnings in the medium term.
• The strategy to self fund South Railroad while maintaining elevated exploration and development spend across three regions makes the company highly sensitive to a reversal in currently strong gold prices. This could quickly erode record free cash flow, slow debt reduction and weaken net margins and earnings resilience through the cycle.
• Ambitious plans to shift to owner operated mining and crushing at South Railroad and to expand and modernize fleets and infrastructure at Musselwhite increase long lived fixed costs and operational complexity. In a weaker commodity price or lower grade environment, this would magnify operating leverage to the downside and compress EBITDA and net profit margins.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Orla Mining is CA$31.8, which represents up to two standard deviations above the consensus price target of CA$24.17. This valuation is based on what can be assumed as the expectations of Orla Mining's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$31.8, and the most bearish reporting a price target of just CA$17.75.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $1.8 billion, earnings will come to $960.6 million, and it would be trading on a PE ratio of 11.9x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of CA$19.87, the analyst price target of CA$31.8 is 37.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.