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4/8/08

Why I believe Aurelian (ARU.to) is about to be sold

The news from Aurelian (ARU.to) yesterday was that Keith Barron, co-founder and company Director, was resigning. It didn't take long for the announcement to come that Barron would be taking up and advisory role at Avalanche Minerals (AVH.v) a small exploration-stage junior operating in Ecuador and Colombia (which promptly zoomed 62% on that tidbit of news yesterday).

Some background on Aurelian. As everyone who follows gold stocks knows, the ARU Fruta del Norte discovery is the biggest gold thing since sliced bread, with 13.7m oz gold and impressive grades already on the 43-101 books and probably more to come. It is a truly mouthwatering prospect for even the biggest of the big global gold miners. But Aurelian's "El Condor" concession is more than just one single FDN deposit. In fact it's about 95km long and 30km wide at its widest point, and holds 39 separate targets that ARU thinks worthy of further exploration.

Which brings me to Barron. He's a real life, died-in-the-wool geologist. A pure rockman. I mean, he sits on various boards as the geology man, 29 years of geology under his belt in countries far and wide, award-winning, respected by his peers and deep enough love for his chosen line to have run a website called "straight talk about mining" for a number of years to share knowledge with others freely. If you've spent time around the breed, you'll know that business affairs bore geologists silly and all the true fanatic geo wants to do is go out poking around rocks with hammers and magnifying glasses to see what they can find. Barron in the Aurelian press release of yesterday said (and I quote);

"....Now we are at a juncture where the mining engineers, geo-statisticians, hydrologists, and an army of technicians take over to transform the Fruta del Norte deposit into a producing world-class gold-silver mine and make Ecuadorian history. It is normal in the course of evolution of a successful junior company for exploration to eventually yield the torch to development; most juniors never get the chance and I feel privileged and blessed. I will be most keenly following the progress of Aurelian and wish to thank the staff in Canada and Ecuador, my fellow directors, the analysts who have followed our progress, and most of all the shareholders who have supported the company and shared in its success...."

But what about the rest of El Condor, Keith? If, as you rightly say, the FDN property is now moving to its next chapter, surely there's enough of interest around the dozens of other target sites to keep you occupied? Doesn't any one of the other thirty-odd targets interest you? You can surely leave FDN to COO George Bee and the top class team ARU has assembled to do the development, but there is plenty more for you to do on a 95km by 30km patch of world class 'elephant-hunting' terrain that you already control.......isn't there?

Barron's resignation also comes at a time when Ecuador's national assembly is about to deliver its draft constitution, due May. It also come at a time when Ecuador's President Correa* has been making more and more pro-mining noises, calling anti-mine protesters irresponsible and saying that responsible foreign direct investment (fiscally, socially and environmentally speaking) is welcome in Ecuador. It also comes when assembly spokespersons are making more miner-friendly noises about the new tax regime on mining, allaying fears that the dreaded windfall tax will nip mining development in the bud (as mentioned yesterday).

Take these three points together.

1) Barron's resignation, basically saying there's "nothing left for a pure geologist like me to do" when there are plenty of other undeveloped target sites worthy of exploration at El Condor.

2) Barron's new job as consultant at the young and developing Avalanche, showing he's still into grassroots geology despite having made his fortune at ARU.

3) The new mining law about to be published as part of Ecuador's draft constitution, and things suddenly looking brighter on the political will for mining and the tax burden proposals

In my personal opinion, all this points to one thing. Aurelian has already been made a serious, confidential, conditional offer by a major mining company, the condition being whether the new laws are workable and amenable to large-scale mining. If the laws prove to be workable (and signs are ever more positive at the moment), then ARU will be bought out at the earliest opportunity.

Who would buy them? My best guess would be Newmont (NEM), but that's just a guess. Any of the big gold miners (ABX) (GG) (GFI) etc would be a candidate, and maybe the second rung miners would be interested, too (AUY) (BVN) etc. But whoever buys out Aurelian and its Fruta del Norte project, they will surely have to pay a lot more than today's closing price of C$8.75 a share. Today's share price implies an in-situ value of around U$91/oz gold, and that's not even close to what FDN and ARU will sell for to the highest bidder.

Disclosure: long ARU, and not selling until they make me

WEDNESDAY MORNING UPDATE: After receiving a couple of...errr...interesting mails, i think it's worth saying that yes I'm long ARU, but I don't trade the stock ST, it's a long-term holding and I'm not planning on selling a single share until the company is taken over. Your mails are still welcome though, even if the contents are....errrr...interesting. Have a good one.

* aka Eric's studmuffin