Is Aurelian for real?
Is Aurelian for real?
Drew Hasselback, Financial Post
Published: Tuesday, March 06, 2007
If you've spoken with any junior mining promoter over the past decade you'll have heard a common refrain: What the business needs is a big, fat discovery that will spark interest in other penny stock exploration ventures.
While the commodities boom of the recent years has triggered a 250% growth in global exploration spending since 2002, it wasn't until last April that the market caught wind of a potential, blockbuster gold discovery.
For the past year, Aurelian Resources has unveiled a series of early-stage drill results that suggest its Fruita del Norte property in Ecuador is one of the finest discoveries in years. Aurelian's shares now trade at about $30 on the TSX, up from less than a dollar at the beginning of the year. Aurelian's market value approaches $1-billion, a spectacular amount for a company that has not even released a report containing an independently verified estimate of the potential size of the Fruita del Norte deposit.
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Font: ****Still, market observers are watching Aurelian with keen interest. According to Michael Gray, a mining analyst with Pacific International Securities in Vancouver, Aurelian has signed 13 confidentiality agreements with senior and mid-tier producers who are taking a closer look at the company's in-house data.
By his own calculations, which are based on the limited drill results Aurelian has publicly released, Fruita del Norte could contain an estimated 11 million ounces of gold, something that would qualify it for a spot on the short list of the world's biggest undeveloped gold deposits.
"Aurelian is the real deal and it has definitely led our markets with a bona fide, world-class gold discovery," Mr. Gray says. Aurelian is "the one we have been waiting for."
Aurelian's find is bound to make it a hot topic at this year's Prospectors and Developers Association of Canada convention. Yet if Aurelian's discovery is just the sort of thing that is needed to stimulate interest in the junior sector, how come Aurelian isn't up for a slew of awards at this year's PDAC meeting?
Edward Thompson, a Toronto-based mining consultant and chairman of PDAC's awards committee, concedes that Aurelian was on a list of potential award recipients. The company did not make the final cut because its drill results are still too preliminary to comply with National Instrument 43-101, a Canadian industry standard that sets out the minimum conditions that must be met before a company can publicly release any estimate on the size of a deposit. Aurelian doesn't expect to release a 43-101 compliant resource estimate until the second quarter of this year.
The Bre-X scandal is now a decade old, but that bitter memory of being had is still fresh in the mining mindset. Initial results from Bre-X promised a blockbuster discovery in Indonesia. Bre-X geologist John Felderhof was named PDAC's Bill Dennis Prospector of the Year at the 1997 convention.
Within weeks of PDAC that year, Bre-X was revealed to be a massive swindle. "We've had trouble in the past getting in too early with these things," Mr. Thompson says.
Patrick Anderson, chief executive of Aurelian, chuckles at the suggestion the company is something of an overnight success story.
He's been hunting for gold in South America since the mid-1990s. He and business partner Keith Baron narrowed their search to Ecuador in January, 2001, after the country revamped its mining laws to kick start exploration. The new code included a "use it or lose it" provision that was designed to halt land speculation and instead inspire foreign investors to move ahead with development projects.
Aurelian was founded on a shoestring budget. The Canadian geologists travelled the country by truck, meeting with local geologists and chatting up artisanal miners for clues about potential deposits.
The sleuthing led Aurelian to investigate a series of interesting concessions in the southeast corner of the country.
Every single concession he looked at was gold-bearing, Mr. Anderson recalls. "I'd never seen anything like it before. You'd see the locals after rain showers running down to the river with their gold pans."
The men eventually heard rumours about some interesting bedrock gold mines in the southeast corner of the country. Mr. Baron visited the location and saw locals conducting small-scale surface mining. As it turned out, the property, known as Fruita del Norte, actually belonged to a Russian miner who had conducted his own small-scale surface prospecting, but who hadn't drilled the project at depth. Mr. Anderson and Mr. Baron bought the rights to the property in the fall of 2001.
A few lean years of drilling ensued. The men funded their exploration efforts using their personal credit cards. They slept on friends' couches and borrowed funds from family. By June, 2003, the pair decided their Ecuadorian projects were serious enough to take Aurelian public. Aurelian shares started trading that month at 50?.
When the first drill results were released in 2003, it looked like Aurelian was going to be an easy money maker. The very first drill hole returned a bonanza result -- 52 grams of gold over a nine-metre-long sample. The penny stock soared to $2.80. Keen to strike while the iron was hot, Aurelian decided to raise more capital by issuing another tranche of shares at $2.25 each.
Unfortunately, Mr. Anderson was in for a harsh introduction to the reality of the public marketplace. In the months that followed the release of the 2003 results, Aurelian was unable to replicate that bonanza grade. Shareholders grew antsy.
"It wasn't as easy as we thought," Mr. Anderson recalls. "The next few holes weren't so spectacular. It was my education in public markets."
Mr. Anderson tried to boost Aurelian's fortunes with a "regional program" that would involve shifting the company's research focus from the location of that first bonanza drill result to other, less-explored concessions in the company's portfolio.
Shareholders complained about this "shotgun" approach. More than a few gave Mr. Anderson an earful about why they thought the company should maintain its focus on the concession that had produced that first bonanza result.
The market grew restless. Within two years, the stock had drifted back to 40?. Rock bottom came at last year's PDAC. Aurelian had a booth, but traffic was scarce. "No one would talk to us," Mr. Anderson recalls.
Aurelian's world changed in April, 2006. The company announced results from Fruita del Norte, a target that had been identified using the "regional program" strategy that had so irritated Aurelian's shareholders. The results showed spectacular grades. By last summer, the stock hit a record high of $40. Aurelian had become the hottest junior on the market.
The company still has a lot of work to do. Five drill rigs are working the property to collect the data the company will need in order to produce that much needed 43-101 compliant resource statement. The results are expected before the end of June.
Now six years into the Ecuadorian venture, Mr. Anderson believes Fruita del Norte demonstrates the country is ripe for large-scale, operating gold projects. "We will do what it takes to see it get mined."
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Ecuador has yet to see a large-scale mining project enter production. Aurelian is not the only Canadian company that is racing to access Ecuador's geological potential. Aurelian's exploration success has simplified its hunt for value. Other Canadian companies are not finding it so easy.
Several non-governmental organizations from outside Ecuador are concerned about Canadian mining efforts in the country.
Among other things, a church group, the Canadian Catholic Organization for Development and Peace, is this year asking parishioners to ponder the mining industry during Lent. As part of that effort, Development and Peace wants Canadian Catholics to take a moment on Sunday, March 18, and "Pray for the rich biodiversity of communities in the Intag Valley in Ecuador whose copper is now very much coveted by mining interests."
The Intag Valley is home to a project being developed by Ascendant Copper Corp. Relations between the company and the anti-mining lobby have been tense. Among other things, a company building was torched during anti-mining protest in December, 2005. No one was reported injured. The company complains its project has been targeted by "ecoterrorists." Local opponents claim they have been attacked by "armed thugs" working for the company.
Another Canadian company, Vancouver-based Corriente Resources Inc., has met stiff opposition from protestors opposed to its Mirador project in the Intag Valley. Ecuador's Ministry of Mines ordered Corriente to suspend work after a clash involving anti-mining protestors in December.
Still, other Canadian miners hope dust-ups involving Ascendant and Corriente won't negatively impact their projects. Iamgold Corp. has been active in Ecuador since 1995, and the Toronto-based mid-tier has so far spent more than $10-million drilling its 12,500-hectare Quimsacocha property in southern Ecuador.
"Quimsacocha is almost four million ounces right now. It is a pretty significant discovery," says Joe Conway, CEO of Iamgold.
Iamgold isn't targeting the property for production until about 2010. Until then, Mr. Conway says Iamgold has already committed to several community programs designed to win local support for the mine. So far, every person working for the company in Ecuador is Ecuadorian, though Iamgold will likely transfer some expats to Ecuador as the project approaches production. "We've got a very good relationship with a lot of the local people. We haven't seen an extensive amount of NGO activity started on our project at all yet. There's been some, but certainly not to the extent where we feel the project is impaired in any w ay," Mr. Conway says.
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As for Aurelian's project, it remains to be seen whether subsequent drill results, and its much awaited resource statement, reveal the project to be a significant find that will lead more prospectors to Ecuador.
Analysts following the company aren't prevented from publishing their estimates of what they think Fruita del Norte could contain. Several remain keen on Aurelian's prospects. A recent note by Canaccord Adams mining analyst Graeme Currie says drill results thus far suggest Fruita del Norte may contain gold grading at 8.0 grams a tonne over 44 million tonnes. He recommends Aurelian as a "speculative buy" with a target price of $50.50 a share.
If the resource estimate released later this year proves the junior analysts right, expect to see Aurelian on the prize podium at PDAC next year.
dhasselback@nationalpost.com
ECUADOR AT A GLANCE:
RESOURCE-RICH COUNTRY HAS BEEN ON MINING COMPANIES' RADAR SCREEN FOR A LONG TIME
Ecuador straddles the equator on the Pacific coast of South America. Here's a brief profile:
Mineral resources cadmium, copper, gold, iron, lead, silver, zinc.
Exploration Since 1991, prospectors have secured exploration permits for roughly 70% of the country's 25.6 million hectares.
Gold output (2004) 5,300 kilograms (186,000 oz), almost all of it artisanal.
GDP (2004) US$54-billion
Companies active in Ecuadoran mineral exploration Aurelian Resources Corp., Bear Creek Mining Corp., Corriente Resources Inc., Dynasty Mining & Minerals Inc., Iamgold Corp., International Minerals Corp., Largo Resources Ltd., and Skeena Resources Ltd.
Source: USGS
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