Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
On January 14th 2013, Alamos Gold Inc. announced it had acquired 23,507,283 Aurizon shares as a result of share purchase agreements between Alamos and certain shareholders of Aurizon. The 23,507,283 shares acquired represent approximately 14.3% of the issued and outstanding Aurizon shares.
Alamos also announced it had commenced a formal offer to acquire the rest of the issued and outstanding Aurizon shares.
Aurizon will produce 127,000 ounces of gold at cash costs of $719/oz in 2013, ramping up to 153,000 oz in 2014 at estimated cash costs of $696/oz.
Alamos is trying to buy Aurizon for Casa Berardi and Joanna.
Aurizon’s Casa Berardi mine currently hosts 1.5 million ounces of reserves at a grade of 5.3 g/t, and 1.5 million ounces in measured and indicated resources at a grade of 4.3 g/t.
The Joanna project is Aurizon’s 100 percent owned primary development project located in the Cadillac Larder Lake Break, between the towns of Rouyn-Noranda and Cadillac in Quebec. The property currently hosts 1.7 million ounces in reserves at a grade of 1.3 g/t and 0.9 million ounces in measured and indicated resources at a grade of 1.3 g/t.
While Aurizon has other projects on the go one in particular stands out – the option/JV deal between Aurizon and NioGold Mining Corporation (TSX-V: NOX)
In July 2010 NioGold entered into an option and joint venture agreement with Aurizon Mines Ltd who may earn a 50 percent interest into the Marban Block property (eight percent of NioGold’s land package in the Val d’Or-Malartic area) by spending $20 million and at the conclusion of the three year current deal prepare and publish an updated resource and then proceed to make a “resource payment” for 50 percent of total estimated gold ounces as follows:
As it presently stands that would be a $38.8m payment to NioGold with at least Phase 2 results to be added into another resource estimate. The current resource estimate stands at 2,069,000 ozs of gold with 1,559,000 of those gold ozs in the measured & indicated category and 510,000 ozs in the inferred (with over 75 percent of those ounces in the M&I category this bodes well for overall resource quality) the size of the resource is sufficient to support 150k+ oz’s of gold production over a ten year mine life.
A capping of 25 g/t was applied to the resource estimate and the effect was to reduce ounces and grade for the Marban deposit by 31 percent or 650k ounces. The capping of assays is required when high grade outliers (for example, 906 grams gold over 2.9 meters) may have a disproportionate influence on the average gold grade.
A 25 g/t top-cut may be conservative:
“Results obtained with the first phase program confirm that gold distribution indicators, such as ounces per vertical metre are comparable to other major deposits in the Abitibi belt and create a strong incentive to accelerate the exploration of the Marban deposit.” Martin Demers, P.Geo., Aurizon’s Manager of Exploration
Aurizon had indicated they planned another resource update to be released before the July 2013 third anniversary date incorporating Phase 2 drilling. Analysts reports have this next resource estimate between 2.5 to 3m ozs.
Aurizon has spent $11 million leaving $9 million to be spent on the Phase 3 program by the third anniversary (July 2013) to earn their initial 50 percent.
Aurizon may increase their interest to 60 percent by delivering a feasibility study and to a 65 percent interest by arranging mine financing.
As things stand right now Aurizon hasn’t earned a one percent, let alone a 50 percent interest in Marban. There is still $9m yet to be spent, and the 50% resource payment to be made, to get that earn in.
This writer thinks Alamos will like the Marban Block deal and decide to continue Aurizons option if they are successful in their bid.
If Alamos doesn’t like the deal then the door is open for Niogold’s neighbor, Osisko (TSX:OSK), or somebody else, to step in.
And that’s what I really like about Alamos’s bid for Aurizon. You see the deal with Aurizon, or maybe Alamos, is only paying NOX shareholders $40 & $30 (with gold +$1560.00) for those ozs. If the JV dies then those ozs, and all the rest, belong to NOX and they are worth considerably more in a buyout, up to $100 per.
Don’t get me wrong, I thought the JV NOX did w/Aurizon was great, it saved a heck of a lot of dilution for shareholders and it is a very good deal. Yes NOX’s shareholder’s eventual ownership of a potential mine will be diluted, BUT, shareholder’s ownership of NioGold was not diluted because there is very little dilution of NioGold’s outstanding shares. This is because exploration and development expenses (including a feasibility study and arranging mine construction financing) are paid for by the partner, not NioGold.
But with $11m already spent in defining over two million ozs and with what has to be much more coming (the very successful $5m phase two program is yet to be counted in the resource estimate) in this author’s opinion for NOX to get this back would be a very good thing.
But I don’t think it will happen, where else would Alamos buy that many ozs this cheaply? However it works out its all good, to better than good, for NOX shareholders.
NioGold just announced that it has commenced a $1.6M exploration program on its Marban Block property. They are going to drill the Kierens and Norlartic deposits as well as the North zone – the Marban Block contains three past producing gold mines – the former Norlartic, Kierens and Marban mines – and three additional distinct gold deposits – the North-North, North and Gold Hawk Zones. There are also several satellite deposits that have not yet been evaluated and they could be add significant ounces to the total gold count on the Marban Block.
The drilling at Kierens and Norlartic will:
Both the Kierens and Norlartic deposits require winter drilling programs due to the need to build ice bridges over Keriens Creek in order to drill the upper part of the deposits.
Due to the timing requirements for winter drilling, in light of Aurizon’s ongoing review of the Phase II data and Alamos’s buyout offer for Aurizon Niogold has agreed to fund the exploration program. Upon Aurizon’s decision to proceed with the Phase III program (if they are still around), Aurizon will immediately reimburse Niogold for the costs of the exploration program and the money spent will be applied to Aurizon’s earn-in requirement.
Conclusion
Eventually the Marban Block could have three open pit mines, the Marban, Kierens and Norlartic (with as many satellite zones as possible around those pits) with plans to underground mine all three after open pit resources are exhausted.
There’s also considerable upside in the blue sky exploration potential of the rest, the 90 percent, of NioGold’s 130 square kilometer land package in the heart of the Malartic and Val-d’Or gold mining camps.
NioGold either gets 35 percent of analysts suggested 3m ozs of gold (after phase two is included) carried to production, all of it and they go it on their own, or bought out.
For all these reasons NioGold should be on every investors radar screen. Is NOX on yours?
If not, maybe it should be.
Richard (Rick) Mills
Richard is the owner of Aheadoftheherd.com and invests in the junior resource/bio-tech sectors. His articles have been published on over 400 websites, including:
WallStreetJournal, SafeHaven, MarketOracle, USAToday, NationalPost, Stockhouse, Lewrockwell, Pinnacledigest, UraniumMiner, Beforeitsnews, SeekingAlpha, MontrealGazette, CaseyResearch, 24hgold, VancouverSun, CBSnews, SilverBearCafe, Infomine, HuffingtonPost, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Wealthwire, CalgaryHerald, ResourceInvestor, Mining.com, Forbes, FNArena, Uraniumseek, FinancialSense, Goldseek, Dallasnews, SGTReport, Vantagewire, Resourceclips, Indiatimes, ninemsn, ibtimes, jsmineset and the Association of Mining Analysts.
If you’re interested in learning more about the junior resource and bio-med sectors, and quality individual company’s within these sectors, please come and visit us atwww.aheadoftheherd.com
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Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.
Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified.
Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.
Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.
Richard Mills does not own shares of any company mentioned in this report.
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