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7/17/08

Aurelian's press release, and a few ciggy pack musings

I am the operator of my pocket calculator

Aurelian (ARU.to) released this PR after the bell which, although technical in nature had a little pearl tacked on the end. The release gave good but wonky news about the trial recovery rates for gold at Fruta Del Norte in different rock types, but also handed out a bit more information about the main body of the FDN deposit. According to the PR, roughly half the 13.7m oz Au resource is contained in 11MT of rock (of the 58.9MT total orebody). If we take that as precisely 50% of the resource, that means the average grade of the 300m "sweet spot" at FDN is 19.3g/t Au. Very sexy. I was using 15g/t up to now.

So let's run some very ballpark numbers and see what the fuss is all about, shall we? Let's hypothesize a 5,000tpd processor on top of that orebody, assume 90% recovery rates and see what happens:

5000 x 19.3 x 0.9 = 86,850

86,850g = 2,792 oz gold per day

365 days = 1,019,300 ounces of gold per year

At let's say $950/oz, 1.02m oz Au is worth....errr...a lot....a very lot....... like......dude.

Just for fun, let's say the cash cost comes in at $400/oz (it's likely to be much less) and Ecuador gov't gets very greedy and takes 60% away from Aurelian (again, this really is a worst case % rake). According to my casio, under those circumstances and the present share count, ARU walks away with a U$1.55 annual EPS.

Not look at what forward PE multiples are used to value gold miners. Just a few examples:

Buenaventura (BVN) 13X,
Yamana (AUY) 14X,
Newmont (NEM) 16X,
Barrick (ABX) 18X,
Kinross (KGC) 20X,
Goldcorp (GG) 37X,
Gold Fields (GFI) 11X

Let's throw ARU in at the low end, yeah? So Aurelian at Fruta Del Norte, under the heaviest tax burden imaginable and with a much higher than anticipated cash cost....worth 12X $1.55? Yeah, $18.60 will do me nicely. I'm looking forward to reading that mining law!

Meanwhile that 11MT high grade orebody processed at 5ktpd gives a deposit life of around six years. Once that 11MT is used up, the processor gets enlarged (to let's say 10kptd) and the other 47MT is put through. Total mine life 19 years with the present resource numbers.

So what we have is a company that will turn into a veritable licence to print money even if the Ecuadorian gov't of Correa gets mega-greedy and costs run 50% greater than expected. We also have a country that is committed to fostering its mining sector as long as the foreign mining companies are prepared to play ball. We have a company in Aurelian that has the best possible community relations with the people that really matter (ie the people that live round the area). Most importantly, bluesky potential at FDN goes way beyond the silly little numbers I've stuck together here, because if FDN stays at 13.7M oz Au, I'm Chinese*.

So tell me, do you own shares of Aurelian Resources yet? If not, why not?

*I'm not Chinese