ARU analyst report
From David Stein)
We visited ARU's exploration site in southeastern Ecuador on Friday and Saturday. Here are some initial comments. Note that I will be back in the office tomorrow, but reachable on RIM today.
-Overall observations: Wow, Fruta Del Norte is an intensely mineralized hydrothermal deposit where native gold (often visible) is associated with silica/quartz and sometimes pyrite. The common occurrence of visible gold is highly unusual for deposits like this, and suggests that the mineralization is much stronger than most other similar deposits--this has the characteristics to be a world class deposit. There appear to have been multiple (hundreds?) of mineralizing events within the system that has completely destroyed the previous rock and replaced it with this silica-gold +/- pyrite zone.
-What is both interesting and encouraging is that the Bonza-Las Peñas zone, which was ARU's first discovery (500 koz @ 1 g/t) consists of several vein structures about 1 km directly south of Fruta Del Norte. In this zone we see the same type of intense mineralization as FDN but over a much smaller scale (10 m or less), so the same gold-rich-fluids were travelling around this large area, and the size of the zone may be related to intensity of the structures that host the gold. This implies that FDN could be larger (continuous to the south) and that other similar zones to FDN could be found.
SIZE OF FDN
-Based on the drilling reported so far, I think that ARU has defined a minimum of 7.0-7.5 MMoz (using uncut grade). Hole 59 reported last week was drilled a little closer to hole 58 than we initial thought so it didn't add as much E-W width, but the deposit is still completely open to the West.
-We are very confident that the deposit will be significant larger than that. Holes 64 and 65 have been drilled extending the strike length 200 m to the north, and both hit epithermal mineralization and visible gold (this was in the press release). Both appear to have at least 100 m of mineralization, although we cannot tell the grade. This means that the deposit may be (but not necessarily) thinning to the north, but is still open.
-With 64 and 65 hitting mineralization, we are confident that the next five holes will imply a deposit size in the range of 9 - 10 MMoz, with the main variable being the grade. Keep in mind that it will still be open to the north, and to the west, as well as the potential to add lower grade tonnage to the south.
NEXT DRILLING
-#61, 62, 63 should be next to report, likley within the next 2 weeks.
-62 should be one of the next holes to be reported, it is on the same section at #60 reported last week. It looks from the core that the grade could be better than #60 (5.5 g/t over 81 m), but the thickness is still likely to be around 100 m.
-Hole 61 is on the same section as #56 (205 m @ 8.4 g/t), stepping out the west. It did intersect the down-dropped fault block, but only for a few metres, so deeper drilling is required to extend the deposit to the west. The grade of this hole could be very good with some large visible gold observed in the core, but likely 80 m in thickness or so, ending the hole in a mineralized porpyry with copper that could be related to the gold mineralization above.
-We saw small sections of #66 and #67, which are being drilled now. #66 is on the same section as 64 and is a step out to the west. It appeared to be intersecting the favourable mineralized zone at 250 m (but we do not know what is above or below)
-#67 was still in the unmineralized conglomerate unit about the ore zone at 190 m suggesting that it is drilled to the west side of the fault block and should intersect mineralization at a deeper level.
-#63 is a scissor hole - drilled in the opposite orientation to intersect the other holes on the 400 m line (189 m @ 24 g/t etc.). This should have excellent grades and widths, but the main use is to confirm the grade in the high-grade zone, it is not likely to add any volume to the deposit.
-ARU is planning to continue to step-out another 200 m to the north with #68 and #69 (not drilled yet).
FUTURE DRILLING
-ARU is contracting two more rigs, at least one of which will be larger and capable of deeper drilling to really test the western zone at depth. By August we expect ARU to have 4 rigs on site (currently there are only 2), and we expect 1-2 rigs to continue to step out on FDN, 1-2 rigs will be in-filling and delineating FDN, and 1 rig will be testing regional targets like El Tigre.
-Depending on the success of the regional work, ARU may have to get even more rigs. We think a major would have at least 10 rigs on the property in an ideal situation.
REGIONAL WORK
-ARU has numerous other gold and copper targets on its concessions. El Tigre is first to be drilled. It has very high gold values in stream sediments, and in fact one can routinely pan gold from the nearby streams.
-There are significant illegal alluvial (river) miners up-stream from FDN suggesting that there could be another gold deposit to the west and/or south of FDN, likely closer to surface since it is washing gold into the rivers.
-Bellavista may see work later this year - strong gold and silver anomalies related to large intrusions at depth.
-There are also numerous porphyry targets at the southern end of the "Corriente porphyry belt", where ARU holds the ground. Sandia porphyry is likely the first to be targeted, but that may not be until 2007...Gold is the companies focus.
SOCIAL/GEOPOLITICAL
-The area near the FDN project is not densely populated, and many of the locals now work for Aurelian. Southeastern Ecuador is one of the only regions in the country where gold mining is a tradition (mainly alluvial/artisanal), and the project seems to have good support.
-ARU is really just ramping up is community relations programs now that an economic discovery has been made. The biggest concern right now seems to be employment, and ARU is already employing a lot of the local and providing a nice camp (work environment) for them.
-There are active illegal alluvial miners on many of the nearby rivers. They are not really disturbing ARU or even mining the same ore bodies that ARU has found, but some may have to be removed when the project moves forward to mining
-The fact that Corriente got its EIA approved for Mirador (just 15 km North) is a great indication of the government's support for mining. Most of the issues for ARU's gold mine would be the same as Mirador, in the same geographical environment. The disturbance could be much less for ARU, which may end up an underground mine. However cyanide will likely have be used to process the gold. By then both International Minerals' Rio Blanco (small) and Iamgold's Quimsacocha should be permitted, providing an even stronger precident.
VALUATION
-Without looking to much at the mining yet, we can throw together some rough numbers. Using GUY as a model, we could see ARU being worth at least $100/oz, potential more since larger deposits often get a premium. At 9-10 MMoz, you would be looking at a share price of $28-$32, and still you are getting additional upside at FDN and the regional targets for nothing. (GUY is trading at about $90/oz today including cash--we believe it will go higher) |
