Aureus Mining has now released its final results for the year ended 2015.
There was no revenue during the year as the mine had not reached commercial production. There was a reduction in legal fees and depreciation and there was an $848K forex gain compared to a loss last year, but share based payments were up $845K and there were a number of large non-underlying costs which did not occur in 2014 including a $50.4M impairment of property, plant and equipment, a $3.5M impairment of inventories and a $2.5M contractor receivable provision relating to the disputed civil and earthworks contractor, which meant that the operating loss increased by $56M. There was also a $1.9M reduction in the warrant derivative gain as the share price fell further which meant that the loss of the year came in at $61.3M, an increase of $57.9M year on year.
When compared to the end point of last year, total assets increased by $14M to $281M driven by a $26.6M growth in mining and development property, a $14.3M increase in inventories and a $3.8M growth in Liberian evaluation costs, partially offset by a $25.8M reduction in cash and a $4.3M fall in prepayments relating to the ICE contractor dispute. Total liabilities also increased during the year due to a $27.1M growth in bank loans, a $7.4M increase in trade payables, an $8.9M growth in finance leases, a $2M increase in accruals and a $1.4M rehabilitation provision. The end result is a net tangible asset level of $111.5M, a decline of $37M year on year.
Before movements in working capital, cash losses reduced by $492K to $3.9M. There was a broadly neutral working capital movement but last time there was a cash inflow so the net cash outflow from operations was $4M, an increase of $224K year on year. The group then spent $4M on intangible assets, $87.7M on property, plant and equipment, and $5.2M on interest which meant that before financing there was a cash outflow of $81.4M. The group received $26.8M from share issues and $28.9M from new bank loans to give a cash outflow for the year of $25.7M and a cash level of $7.1M at the year-end.
Mining operations during the period continued to be hampered by an inconsistent supply of explosives throughout October and November, improving in December. As a consequence, mining activities predominantly focused on keeping the plant supplied with sufficient feed levels of run of mine ore and as a consequence there were slippages in the waste mining schedule. Despite this, a total of 235,351 tonnes of ore and 1,419,254 tonnes of waste material were mined during Q4.
Excavation works started during the period on a diversion channel along the south of the final pit limit to prepare for mining operations throughout the wet season which resulted in the removal of 305,322 tonnes of material. ROM stockpiles stood at 136,657 tonnes at a grade of 2.25g per tonne at the year-end in addition to fine ore stockpiles of 12,382 tonnes at 3.03g/t.
In October a mechanical failure occurred with the secondary crusher of the process plant resulting in the suspension of processing activities at the processing plant. After a stoppage of 19 days, ore crushing operations restarted at the end of the month following the installation of a temporary 200 tonne per hour mobile crushing unit. This crusher will be retained on site for a six months to provide additional flexibility during the final testing and commissioning phase of the plant, and also to provide additional crushed rock material for use on haul road surfaces and other infrastructure. The crusher was repaired by the end of October and mining operations continued during the processing outage.
The plant processed 348,517 tonnes of ROM stockpiles during the year resulting in 16 shipments of gold dore for smelting and refining at the MKS PAMP refinery in Switzerland which totalled 17,172 ounces of gold. The average achieved price for gold sold during the year was $1,117 per ounce.
Performance from the gravity circuit of the plant had not yet reached design specifications as of the year-end which resulted in overall gold recoveries of about 70% in Q4. During the period there was a focus upon fine-tuning and improving the operational performance of the gravity circuit and further optimising carbon in leach kinetics. Various options were evaluated during the period which improved overall plant performance.
As a result of the ongoing process plant optimisation activities at the mine, overall plant recovery levels increased towards design specs in early Q1 2016. Continued optimisation of the gravity circuit since this time has shown incremental improvements and there have been further operational improvements in CIL kinetics. Additionally ongoing preventative maintenance activities have allowed plant availability to improve and have resulted in more stable operating conditions. Following the introduction of a fresh carbon supply into the CIL tanks of the process plant, overall gold recovery reached 90% towards the end of February and as a result, commercial production at the mine was declared from March.
In November the group received a request for arbitration from International Construction and Engineering with respect to their contract to carry out civil and earth works at New Liberty. The contract was terminated in August 2014 when the works were about 70% completed with the works being completed by directly hired labour and contractors. The company believes that the request is without merit but they have not received sufficient details to substantiate the claim. Despite this, management believes that no material amount will be found payable.
The company is currently working with SRK Consulting to develop and explore several Life of Mine options for New Liberty. The result of this will be an updated LOM plan for the mine that is more suited to the prevailing gold price and takes into consideration the current shortfall in waste mined compared to the original plan. As part of this, SRK has developed an update orebody model for the project, taking into account information provided by the grade control drilling that was completed during the year. This updated model has been used to undertake a pit optimisation exercise to develop the most economic ultimate pit-shell, pit phase and ramp design. Work is currently focussed on developing an optimal mining schedule and plan for the mining of this pit.
During Q4, exploration works focused on the near mine potential around New Liberty with pitting and regolith mapping around the western portion of the license. The aim of this work was to test for concealed mineralisation along major and secondary structures close to the New Liberty plant. Much of the soil sampling around the mine has been found to be in residual or depositional regimes and therefore pitting is needed to reach the saprolite sections.
Soil anomalies at the West Mafa and Goja targets, located six and nine Km NW of New Liberty occur in erosional and residual terrains and are representative of in-situ mineralisation.
Trench and pit results from the Goja target show broad mineralisation developed in close proximity to intrusives with better grades found at depth showing the need for further pitting work. On Anomaly B and C regolith mapping shows that depositional regimes and some ferricrete potentially mask a large proportion of the target strike extent. Further pitting on these major structures will be completed in Q1 2016 as well as on the West Mafa and Goja areas.
During Q4, detailed geological mapping was undertaken to the south and north of Ndablama to further extends the strike of mineralisation at surface with the aim of defining drill targets and a review of the existing core is being undertaken as preparation for possible future drilling. During the quarter, mapping and channel samples taken to the SW of the Weaju project show the potential to increase the strike of mineralisation for another 800 metres. Further mapping and sampling will be done going forward to better define the surface expression of mineralisation.
In May, the Bea Mining license was enlarged to include the Leopard Rock gold target immediately south of the license which hosts the SE extension to the gold bearing rocks associated with Ndablama over a distance of 3km. To date, 4,294 metres of diamond drilling has been completed and results from 27 diamond drill holes have been made available. Gold mineralisation occurs within folded, deformed and metamorphosed ultramafic and mafic rocks along a NW trending shear zone. A geology and mineralisation model was completed using the drill and trench data which was done to help further in exploration planning and understand the geology and structural setting of the area. Further mapping is being undertaken to gain better understanding of Leopard Rock ready for a phase two drilling programme planned for the future.
Gondoja was mapped in detail as part of a campaign to map the Yambesei shear zone, this has enabled the tracing of mineralisation at surface and put the soil anomalies into a geological context. Further pitting to follow the mineralisation along the shear zone is planned for Q1 2016. At Silver Hills, work focused on the Belgium target during Q4 where pitting and mapping has increased the strike extent of mineralisation to over 900 metres. This mineralisation which is highlighted by a NE trending shear has the potential to extend over 3km up to the Bruges target located in the NE. Further pitting, mapping and soils work is ongoing at the target to trace the mineralisation along strike and to bring the Belgium target to an advanced stage.
In Cameroon, exploration work continued on the interpretation of the mineralised systems of the Kambele and Dimako targets following on from core relogging. The work was recommended in order to produce a new interpretation of the mineralisation models and determine their potential to host economic deposits. A GIS study was undertaken over the license area and resulted in the identification of structural lineaments along which field verification has shown the presence of artisanal sites. A first pass RC drilling programme is planned for Amndobi along the 5km structure to test its potential while diamond drilling is planned to further test the Kambele target.
Following Liberia being declared free of Ebola for the second time in September, there was a small resurgence of cases in Monrovia in November. In December the last two patients were discharged from hospital and human to human transmission of the disease was declared over in the country during January 2016.
In September the final payment was made in relation to the settlement agreement for the acquisition of certain mining rights from Weajue Hill Mining Corp. This comprised of $445K in cash and 1,148,611 shares.
During the year the group provided for a $2.5M advance payment to the civil earthworks contractor for the development of the mine but the company continues to pursue the recovery of the amount. The continued deterioration in the gold price during the year along with the mine operations falling below expectations during the pre-production phase meant that the company recognised an impairment of $50.4M against their mining and development property along with an impairment of $3.5M to the gold in circuit inventory. They have used estimated gold prices of between $1,190 and $1,292 and should the gold price fall by a further 10%, it would lead to a further impairment charge of $78.7M. Similarly a 10% increase in operating expenses would give rise to an impairment charge of $54.8M.
As of the end of the year the company had net current liabilities of $11.1M and $12.4M of debt repayments due in 2016. Commercial production was declared at New Liberty in March 2016 and the company is currently finalising an updated mine plan which will form the basis of discussions between them and their lenders to agree a revised debt repayment schedule. The board believe this will be achieved but there is no certainty that the negotiations are successful or that the company will be able to generate the necessary funds to repay the debt as it currently falls due. Offset against these liabilities, the group has just $7.1M in cash and $374K of receivables so there is definite need for more cash from somewhere – I would have thought the company needs to undertake a placing unless there is a sustained gold price recovery and the lenders are very generous.
The first repayment of $3.1M was originally due in January 2016 but this has been deferred to April. In December the group entered into an agreement for an additional $10M which were fully drawn by the end of the year and helped finance the development of the New Liberty mine. In consideration for granting this facility, the company issued options to purchase 20,400,000 shares at an exercise price of 7p and also re-issued the 11,124,528 warrants issued to RMB on the same terms. As the current share price is about 7.6p, this is likely to keep a cap on the price going forward in my view.
The group also seems to have a high level of finance leases relating to diesel powered generators and the fuel storage facility – they represent $12.9M in total with $2.3M due within the year. It is expected that operating cash flows will fund the New Liberty mine operations going forward, however.
After the year-end the group granted stock options over 11,796,000 shares at an exercise price of 5.6p per share which vest over the next two years which is nice for those who received them! Also, they completed the acquisition of three exploration licenses from Sarama Investments for a consideration of 6,645,070 shares. These licenses are located close to the New Liberty mine and prior to the sale, Sarama conducted a $1.8M exploration programme over the license areas which included an airborne magnetic survey and regional soil sampling. This programme led to the identification of the 15km gold in soil anomaly that straddles the Cape Mount and Cape Mount East licenses and that corresponds the to the Westerly extension of the Bea Mountain Greenstone Belt. This belt is interpreted as being folded over the license areas with the southern limb corresponding to the Silver Hills target in the Bea Mining license. Subsequent trenching was undertaken in several locations along the gold corridor and demonstrated in situ mineralisation with best intercepts of 16m grading 1.7g/t and 6m grading 2.3g/t.
In 2014, Sarama undertook a 1,600 metre reconnaissance diamond drilling programme of 15 holes targeting the Bangoma, Saanor and Bomafa prospects, all of which are located in the Cape Mount license.
Since the declaration of commercial production at the New Liberty mine, the plant continues to operate in line with original design specs and recovery levels in excess of 90% continue to be achieved. Ongoing optimisation activities continue at the process plant and as a result management fully expect further operational improvements to be realised in the coming months.
The key focus for the company is now finalising an updated mine plan to maximise the returns of the mine and which will be the basis of discussions between the company and its lenders to agree am appropriate debt repayment schedule. Operationally, mining activities continue to progress in both the Kinjor and Larjor pits with a focus on the completion of the southern water division bund to facilitate the continuation of mining activities during the wet season.
As the group is loss making and forecast to be loss making next year, there is not really much point looking at PE ratios. The group does have a large amount of tax losses that could potentially be used going forward with the unrecognised deferred tax asset standing at $73.9M.
On the 5th April, the company announced that it continues to work with its consultants to finalise a number of revised mine plan scenarios at various gold price levels.
Overall then this has been a difficult year for the group. There was still no revenue so the group incurred a hefty loss, mainly as a result of impairment. Net assets also declined and although cash losses were slightly improved over last year, the operating cash outflow was higher. The year was affected by poor availability of explosives, although this did improve in December, and the group had problems with a mechanical failure on the secondary crusher which has now been repaired. In all, they still managed to produce 17,712 ounces of gold at an average sales price of $1,117 per ounce.
The mine has now entered commercial production and the problems in the secondary crusher seem to have been resolved but the availability of explosives is still a concern and, although higher than it was, the gold price could be better. The real problem, however, is the trouble the company has got into regarding its debt. There is no way it can pay its debt on time and discussions over a mine plan and debt repayments are still ongoing. Until this has been resolved, these shares are a total gamble and therefore not for me.