Aureus Mining was incorporated in Canada in early 2011. They are involved in the exploration and development of gold assets in West Africa, particularly the construction of the New Liberty Gold Mine in Liberia which is nearing completion. The company is listed on the Toronto stock exchange and the AIM exchange.
The company holds a mineral development agreement in Liberia for gold development which is valid for 25 years with an option for a further 25 years and when it was ratified in 2013 it had 13 years remaining. In 2009 the company was granted a mining license which allows them to explore and mine in an area that encompasses the New Liberty Gold Project, Weaju, Gondoja, Silver Hills and Ndablama. In 2011 they acquired the Archean Gold exploration license which is an area immediately south of the company’s Bea Mountain mining licence and currently contains the Leopard Rock property. In 2013 they increased their holdings around the New Liberty project through the acquisition of exploration licenses which included Yambesei, Archean West, Mabong and Mafa West. In Cameroon the Batouri licence covers an area of 1,000 km2 and targets gold in the east of the country. Additionally the company holds over 30M shares in Stellar Diamonds, a diamond mining and exploration company listed on AIM.
I always think it is useful to look into some accounting policies and in this case, mining and development costs are capitalised as intangible assets but are not amortised during the development phase, instead being checked for impairment. On commencement of commercial production a development property is transferred to a mining property and is depreciated on a unit of production method. I suspect that is all fairly standard for a mining company of this type.
The New Liberty Gold Project is a greenfield development which has good access to the capital and main port, Monrovia, and there is already a 100km mostly tarmac road from Monrovia to the project site that provides year round access. The total reserve at the project stands at 924,000 ounces at a grade of 3.4g/t with 8.5MT of ore with 99K ounces so far proven. The reserves support an open pit operation with an annual production rate of 1.1MT of ore over an eight year production life. The site has measured resources of 100,000 ounces at a grade of 4.77 g/t and indicated resources of 1,043,000 ounces at a grade of 3.55 g/t.
The Ndablama prospect is located approximately 40km NE of the New Liberty deposit and is defined by the presence of extensive artisanal mining activity and a 2km gold in soil anomaly. There is an indicated resource of 386k ounces at a grade of 1.58 g/t and an inferred resource of 515K ounces at 1.7 g per tonne. The Weaju deposit is situated 30km NE of the New Liberty project at the eastern end of the Bea Mountain range and has been the subject of intense artisanal mining activity. This one comes with some strings attached, though. Upon completion of a feasibility study, Weajue Gill Mining Corp will receive payments equivalent to $5 per ounce measured, indicated and inferred resources. If commercial production is achieved within the area, they will receive a one-time payment equivalent to 2.5% of the net present value of the project and 7.5% net profit interest on life of mine production within the area – this seems like a lot to me. The inferred mineral resource is 178,000 ounces at a grade of 2.1 g/t.
At Leopard Rock in the Archaean license, gold mineralisation occurs within folded, deformed and metamorphosed rocks along a NW trending shear zone but so far no resource studies have been completed. The Gondoja target is located 8km NE of Ndablama and has been previously explored by Mano River in 2000 and showed grades of between 1 and 2 g/t over wide widths of 20 to 64 metres. Koinja and Gbalidee are located on the Yambesei shear corridor. Silver Hills is another area that has experienced artisanal mining in the past and pitting is currently being undertaken at some of these areas.
Aureus Mining have now released their final results for the year ended 2014.
There are no revenues yet at this company so we can have a look at the expenditure. Legal and professional expenses nearly halved during the year due to a reduction in fees incurred in relation to the project financing as legal documentation was completed in Q4 2013, but this was mostly offset by an increase in depreciation and wages. We also see a foreign exchange loss but a fall in other expenses. The big difference year on year was the $3.3M impairment of the investment in Stellar Diamonds which took place last year, representing the cumulative losses incurred on the investment since 2011. We also see a $2.3M warrant derivative liability gain to give a loss for the year less than half that of last year at $3.4M (nearly the amount of that Stellar impairment).
When compared to the end point of last year, total assets increased by $100.9M driven by a $99.3M growth in mining and development property relating to costs incurred at New Liberty, particularly earthworks ($22.3M), mechanical supply ($15.6M) and structural supply ($16.7M), and a $7.3M increase in the Liberian evaluation costs (relating to the drilling programme at Ndablama), partially offset by a $6.4M fall in cash. Liabilities also increased during the year due to a $74.9M growth in the bank loan and a $3.8M increase in trade payables to give a net tangible asset level of $148.5M, an increase of $13.7M year on year. The 2013 liabilities above do not quite match what is printed in the accounts because on the statement the trade payables and accruals do not equal the total payables. This is a bit annoying but the figures are not material and it was last year…
Before movements in working capital the cash loss fell by $382K to $4.4M. A fall in receivables meant that the net cash outflow from operations stood at $3.8M, a fall of $1.5M year on year. The group then spent $7.4M on exploration assets and $92.8M on producing (nearly) assets to give a cash outflow of $105.2M before financing operations. In order to pay for all this, the group issued $22.4M of new shares, $3M of new warrants and took out $74.6M of new borrowings.
At New Liberty, construction of the Run-of Mine wall and tipping bin was completed at the primary crusher. The steelwork for the secondary crusher was also completed and both crushers were lifted into position ready for further commissioning. Good progress was made on the mill building installation, following the placing of the completed mill shell and trunnion ends on its bearings in November. The CIL and detox tanks reached their final levels with further work focusing on the completion of the tank stiffener rings and the bund walls. During this period, all significant areas of civil works were handed over to the contractor. Work on the tailings storage facility has commenced and the main water line from the dam was also installed during the period.
Six of the eight power generators have been placed and commissioned and the final two are now on site ready to be commissioned. The mine store and workshop buildings have been completed and only await connection to the mains power while construction of the reagent store is 80% complete. The plant admin offices have been completed and all the process personnel and contractor staff have moved into them. Some 90% of all planned concrete pours have now been executed.
The staff and visitor accommodation at the mine camp was completed and occupied during the period and drinking water was also commissioned with work starting on the sewage plant. All bush clearance totalling 95 hectares was completed in the open pit arena and the pre-strip mining has been completed for the Larjor pit and the mining of the first ore in the pit was started. Mining activities focused on the upper levels of the pit and waste rock from the pre-strip and early mining phases has been used in the construction of a surface water diversion berm around the pit area and in the construction of the haul road.
The mining equipment supplier has commissioned the drill rigs and the excavator and the first four of the 100 tonne dump trucks have arrived on site and are undergoing commissioning in time for taking over from the existing fleet during Q1 2015. Operator training for the trucks has commenced during the period. Grade control drilling was completed in both the Larjor and Kinjor pits with a grid of closed spaced inclined RC holes designed to provide detailed grade information of the mineralisation contained within the first year pit. The results have shown excellent reconciliation with the resource model in terms of mineralisation strike, dip and width of intersections.
In addition to the above, the New Mine Plan was announced in February 2015 which included an additional 28,000 ounces of gold expected to be produced in the first year of production through the mining of an additional started pit to bring the total year one target production up to 122,000 ounces of gold. Post tax project NPV of expected cash flows from the start of commercial production have increased to $328M (using a gold price of $1,300 per ounce, a 5% discount rate and a corporation tax of 25%). Significant free cash is now expected to be generated throughout the life of the mine with earlier free cash to fund the other exploration programmes. The life of mine average operating cash costs are expected to be reduced by 8% to $692 per ounce with all-in sustaining cash costs reduced by 7% to $789 per ounce.
As far as exploration on the license is concerned, trenching work was carried out on the West Mafa and Goja targets in the western portion of the area. Results from East Mafa showed gold spikes associated with narrow quartz veins in amphibolites, gneisses and iron rich formations. A geology fact map was produced for the area and interpretive geology maps developed. Results from Goja showed broad mineralisation developed in close proximity to intrusives. Further reconnaissance work will be conducted around New Liberty with follow up work to be carried out on prioritised targets.
At the Ndablama prospect, phase four of the exploration drilling programme was completed which led to an updated resource of 386,000 Oz at 1.6 g/t indicated and 515,000 Oz at 1.7 g/t inferred. At the Weaju project, six additional diamond holes totalling 1,142 metres were drilled that explored down dip and along strike as well as testing the mineralisation model. At Koinja and Gbalidee, regolith mapping was undertaken during the period and detailed geological mapping and trenching are required to further define the full potential of the corridor. At Silver Hills, lithosamples and channel samples returned good grades in artisanal mining areas such as Belgium, Kpokolo and Wesse and pitting was undertaken at the Belgium and New Belgium targets during the period.
During the year, regional mapping on the Yambesei license confirmed additional potential mineralisation along greenstone belts including the Mafa and Yambesei shears as well as the NE extension from Gondoja. New regional targets were defined based on the presence of artisanal workings and anomalous lithosample results and a soil grid completed in Q2. Bulk leach extractable gold sampling was also completed with 279 samples collected in the license identifying targets for future follow up. Mapping and lithosampling was undertaken in the Archean West license at Lofa Congo and South Than which host alluvial mining for gold and diamonds and at Mabong, mapping and sampling continued showing the geology dominated by amphibolite-granite intercalations with late dolerite dykes (yes, really!)
In Cameroon, exploration work focused on the interpretation of the mineralised system of Kambele and Dimnako following on from the reclogging. The work was undertaken in order to produce a new interpretation of the mineralisation model to determine the potential of the two targets to host economic deposits. A ground induced polarisation or ground magnetic survey is planned to be conducted at the Amndobi prospect followed by a first pass RC drill programme.
At the year end, the group had commitments of $14.3M of capital expenditure and $1.5M of operating expenditure. At the end of last year, the company entered into an agreement for an $88M project finance loan facility with Nedbank and Rand Merchant Bank and also entered into a subordinated loan facility agreement for $12M with the Rand Merchant Bank which will be used to finance the development of the New Liberty Gold Project. The project finance loan’s first repayment in January 2016 and it is repayable in nine payments. It bears interest at US LIBOR +1.8% + 2.5%. The subordinated facility bears interest at US LIBOR + 7.5% for a six and a half year term and is repayable in full six months after the final senior loan repayment – that is quite a hefty interest rate. At the end of the year, $8M of the senior facility and the full $12M subordinated facility remain undrawn.
If US LIBOR rates increase by 100%, the group would have to pay $300K more in interest per annum. A 10% strengthening of the USD against the GBP or Canadian dollar would reduce net assets by $50K and $35K respectively. A 10% strengthening against the South African Rand would increase net assets by $192K. Included in prepayments is $2.5M in advanced payments made to the earthworks and civils contractor which remained unrecovered at the termination of the contract.
In April, the company completed a private placement to sell 33,375,000 units at a price of £0.27 per unit. Each unit comprised of one common share in the company and a half of one common share purchase warrant. Each warrant entitles the holder to purchase one share at a price of £0.378 up to October 2017. The direct costs associated with the placing amount to $2.9M. In July the company closed a subscription by the IFC, the private sector arm of the World Bank, for 24,520,296 units at an issue price of £0.27 per unit to raise $11.2M. The terms are the same as above except the warrants expire at the end of January 2017. Direct costs to issue the units were $1.1M. The total number of warrants outstanding is 40,072,175 at an average exercise price of £0.392 per share.
After the year-end, the company granted stock options over 5,631,875 common shares at an exercise price of C$0.35 per share. 575,000 of the options were exercisable immediately and the remainder vest over the next two years upon completion of certain service and performance vesting conditions. The group also completed an equity financing, raising $15.3M through the issue of 56,000,000 new shares at a price of 18p per share which included the issue of 29,239,766 shares worth $8M to the IFC and the issue of 26,760,234 shares worth $7.3M to brokered financing.
During the year the majority of earthworks and civils, the installation of most key items of mechanical infrastructure, and the diversion of the Marvoe creek have been completed, along with the relocation of the Kinjor and Larjor villages. The primary focus for 2015 will be to complete the construction of New Liberty with first gold targeted for the end of May and final commissioning is expected to occur by July, leading to steady state production from August. General exploration work will also continue across the other licenses with the medium term goal of Aureus becoming a multiple mine producer.
Although there were no profits this year, the consensus forecast is for a PE ratio of 13.7 on next year’s profits which sounds good for what will not be a full year of production. At the year end the group was in a net debt position of $42.8M.
So, I have looked at a few gemstone miners and oilers but so far no gold miners – given the price of the precious metal I thought now might be the time to take a look at one. The loss this year is neither here nor there really but the improvement was due to the impairment of the Stellar Diamond investment last year. Net tangible assets increased during the year, as the group issued more equity to fund its activities and there was a $106.2M cash burn before financing which seems to have been enough to complete most of the work for New Liberty. There is still at least $14.3M of capital expenditure to go but this was covered by the post year-end placement and there is still nearly $33M of cash at hand and a little bit of headroom with the loans, although not a great deal.
Clearly this is a very important time for the group, the start of mining is pretty much here and the project should be nicely profitable at a gold price of $1,300 an ounce. Where the price of gold is heading, though, is anybody’s guess. All of my investments in these natural resources companies end up going sour so I am keeping a watching brief here for the moment.