Orla Mining's Camino Rojo: A Deep Dive into a Gold Mine's Underground Renaissance

The Camino Rojo project in Mexico, a cornerstone asset for Orla Mining (TSX: ORLA), is undergoing a transformative shift from its open-pit oxide operations to a high-value underground sulfide mine. This transition, driven by robust gold-equivalent (AuEq) grades and a strategic shift toward deeper, higher-margin mineralization, positions Orla to redefine its production profile and shareholder value. With a 2025 underground resource estimate revealing 50.1 million tonnes (Mt) averaging 2.58 g/t AuEq and a pending Preliminary Economic Assessment (PEA), Camino Rojo's underground potential could extend its mine life beyond 20 years while reducing reliance on volatile open-pit economics.

The Resource: A Gold-Silver-Zinc Bonanza
Camino Rojo's underground resource, disclosed in June 2025, is a multi-metal marvel. The Measured & Indicated (M&I) resource of 50.1 Mt hosts 3.95 million ounces (Moz) of gold, 17.05 Moz of silver, and 278 million pounds (Mlbs) of zinc. The gold-equivalent grade of 2.58 g/t AuEq—enhanced by zinc credits—creates a compelling value proposition. Notably, Zone 22, a high-grade carbonate-hosted zone extending to 1,300 meters depth, contributes 0.29 Moz AuEq to the Indicated category and 0.08 Moz AuEq to Inferred resources. With 11,000 meters of a 15,000-meter drilling program completed by mid-2025, Orla aims to upgrade Zone 22's inferred resources into indicated categories by Q3, a critical step toward PEA confidence.

Strategic Shift: Underground's Economic Edge
The underground pivot is not just about depth—it's about efficiency. Camino Rojo's resource is divided into three metallurgical streams:
1. Heap Leach (3% of tonnage): Low-cost gold recovery (40–70%).
2. CIL (25%): Higher gold recovery (92%) with minimal byproduct credits.
3. POX-CIL (72%): Optimizes zinc recovery (80%) alongside gold (85%), generating ~$100M annually in zinc credits at current prices.

This stratification reduces processing costs while leveraging zinc's stable pricing. Crucially, the underground plan integrates with existing infrastructure—using the open-pit's infrastructure for surface facilities and a proposed exploration drift (decline) to access deeper zones. This lowers upfront capital and mitigates risks compared to greenfield projects.

PEA: The Catalyst for Value Realization
The PEA, slated for 2026, will validate whether Camino Rojo's underground potential translates into a low-cost, high-margin mine. Key targets include:
- All-in Sustaining Costs (AISC): Sub-$500/oz gold, driven by zinc credits and shared infrastructure.
- Mine Life: 20+ years, extending beyond the open-pit's 2030 closure.
- Capital Efficiency: Leveraging existing roads, water systems, and the oxide processing plant to reduce CapEx.

Metallurgical validation is critical. Blue Coast Research's ongoing cyanidation and flotation tests for Zone 22 aim to confirm recoveries and costs, which could unlock premium pricing for high-grade carbonate ores. The PEA's success hinges on proving that sulfide processing—particularly zinc flotation—can be scaled cost-effectively.

Permitting: Low Risk, High Certainty
Orla's permitting strategy minimizes regulatory hurdles. The underground portal and exploration drift are proposed within the existing open-pit footprint, reducing community opposition and accelerating SEMARNAT approvals. As of June 2025, permit applications submitted in November 2024 remain under review, but the project's alignment with Mexico's mining-friendly policies (e.g., 2024 regulatory reforms) bodes well. A 2026 construction start for the exploration drift—pending approval—would enable tighter-spaced drilling and Mineral Reserve definition, further de-risking the project.

Risks and Mitigants
- Metallurgical Variability: Zone 22's carbonate matrix may require specialized processing. Orla's metallurgical testing and pilot plants are addressing this.
- Gold Price Sensitivity: Gold accounts for 70% of AuEq value. A sustained drop below $1,800/oz could pressure economics.
- Integration Costs: The Musselwhite Mine acquisition (Feb 2025) increases AISC to $1,300–1,500/oz in 2025. However, Camino Rojo's low-cost profile could offset this over time.

Investment Thesis: Accumulate Ahead of the PEA
Orla's shares trade at $3.50, a 25% discount to their 2024 highs. With the PEA due in late 2026 and Zone 22 drilling results in Q3 2025, now is a strategic entry point. A successful PEA could catalyze a re-rating to $5.50–$6.00 by mid-2027, reflecting a 20-year mine life and zinc-driven margins. Investors should set a stop-loss at $2.80, below 2023 lows, to protect against prolonged gold weakness.

Conclusion: A New Era for Orla
Camino Rojo's underground expansion is not merely an extension—it's a reinvention. By capitalizing on AuEq-rich sulfides, leveraging existing infrastructure, and mitigating permitting risks, Orla is poised to become a low-cost gold producer with multi-decade visibility. The PEA will be the ultimate test, but the data to date suggests this project could transform Orla from a mid-tier gold miner into a sulfide-focused powerhouse. For investors willing to look beyond near-term gold volatility, Camino Rojo's underground renaissance is a compelling story of value creation.

Recommended action: Accumulate ORLA at $3.50 with a 12–18-month horizon, targeting $5.50–$6.00 post-PEA.