Aurcana: La Negra Drill Results Suggest Further Resource Increases Ahead
By Christopher Wood
January 27, 2013
This week Aurcana released drill results for the La Negra property [ 1]. Reporting this information in a press release was a nice change as historically we have seen very few drill results reported by Aurcana even through we know they have been conducting drill programs at La Negra since 2007. We believe the scale of the resource at La Negra (massive) is currently under appreciated by the market and think that a track record of drilling success followed by resource increases could help bring investor attention to this asset and the company (maybe this will help investors/analysts realize that the resource at La Negra can support well over 30 years of mine life at currently planned mining rates and could in all likelihood support a second mill that would double output once the upgrade of the existing mill to 3000tpd is complete... that's without finding any more ore, which these results demonstrate is happening with regularity). We hope this marks the start of a new trend of timely and transparent release of this sort of information.
In short, this set of drill results are quite good, and not yet part of a 43-101. They demonstrate that the high-grade mineralization of known ore bodies continues beyond the currently modeled regions (re: Virginia, Breccia, Maravillas) as well as the discovery of new zones of mineralization (re: Elia).
To come to a determination as to "how good" these results actually are, we calculated additional metrics for each drill hole and compare them to the current resource. The additional metrics are as follows:
- AgEq (g/t): The silver equivalent grams/tonne; this is calculated by converting the Lead, Zinc, and Copper portions of the resource to their Silver equivalent number using a set of known prices for each metal. As done in the Q3-2012 MD&A [ 2], we use the trailing 12-quarter average spot price.
- Recovered AgEq (g/t): Same idea as above, but this time accounting for recoveries (only count ounces of AgEq recovered). Recovery values are also taken from the Q3-2012 MD&A (representing actual recoveries as documented January through May 2012)
- Revenue ($/t): The total revenue per tonne of ore based on the recovered AgEq (Note: this is gross revenue... the company typically likes to report 'revenues from mining operations' which is what results after deducting refining and smelting charges from gross revenues).
- Net Income ($/t): The net income from operations per tonne of ore based on recovered AgEq. Calculating this requires a cash cost per tonne number, which we calculate from the Q3-2012 financial results [ 3]; it includes mine operating expenses and refining and smelting charges. (Note: it does not include administrative costs or income taxes).
- Margin (%): This is simply net income divided by revenue; it purpose is to give a metric for how profitable the mining operation is.
Here are the numbers we used to calculate the above values (yes, the prices are conservative given the current spot price for the metals, but we like that):
For those that are keen, we arrive at the cash cost number by adding the mining operating expenses ($8.5M) and the refining and smelting charges ($3.4M), then dividing by the number of tonnes milled (197Kt)... all Q3-2012 numbers.
For reference here are the results when we calculate the additional metrics for the total measured and indicated resource reported in the latest 43-101 for La Negra [ 4]
Quite nice margins if you ask me. And just for fun, $114/t multiplied by the total number of measured and indicated tonnes is... drum roll please.... $3.08B (yes billion, and this excludes all inferred ounces), but I digress.
What I am most pleased with are the results from the Northwest trend. The company has said on several occasions that drilling on the Northwest trend indicated "high grade" ore, but this is the first hard data we have, and it does support the story nicely. Several of the holes offer wide intercepts of high grade material. These are the highlights in my opinion:
- Dvir-292: 28m of $108 net income rock (Virginia)
- Deli-319: 16m of $133 net income rock (Elia)
- Dvir-290: 15m of $151 net income rock (Virginia)
We also like that Elia appears to be a new zone of mineralization, or at least is a zone that is not present (or even mentioned) in the most recent 43-101. New ore bodies mean new resources (drilling in existing ore bodies can be infill and result not in new ore, but higher confidence ore, moving from inferred to measured and indicated for example).
Now for the numbers. We've taken the liberty of highlighting (in yellow) any results that are over 5m in width and offer $100/t or more in net income. First the Northwest trend, which has a lot of yellow.
Next the Northeast trend. The economics here aren't as good as the existing resource or the numbers from the Northwest trend, but, considering they are above the grades mined in Q4-2012 (~72g/t), they are still quite respectable, and economic.
The take-away here is that Aurcana continues to discover additional ore with strong economics at La Negra and we can expect these results to contribute to an increased resource estimate for La Negra expected in the second half of 2013. We'll leave you with a quote from the CEO, who was recently interviewed by Gecko Research [ 5] (Note: well worth listening to). When asked about the recent drill results, he said the following, which we think sums it up well:
"In a sense they are new discoveries, they are confirming the high-grade extension of the known mineralization both in the Northeast as well as in the Northwest trend. So it's very satisfying for us. It just indicates that this mine is a very large mine that just keeps growing and growing."
P.S. If the market doesn't take notice soon, maybe a competitor will... a profitable and producing mine with a +170Moz Ag resource (excluding Shafter) that continues to grow in a safe jurisdiction, currently trading at a market capitalization of $1.77/oz Ag. Of the junior producers (production less than 5Moz Ag per year), only Golden Minerals, Revett Minerals, and Arian Silver are currently cheaper by this metric (and for good reason).
References
[1] http://www.aurcana.com/i/pdf/Jan-24-2013-NR.pdf
[2] http://www.sedar.com/GetFile.do?lang=EN&docClass=7&issuerNo=00003467&fileName=/csfsprod/data136/filings/01980828/00000001/s%3A\AUNq3MDA.pdf
[3] http://www.sedar.com/GetFile.do?lang=EN&docClass=5&issuerNo=00003467&fileName=/csfsprod/data136/filings/01980826/00000001/s%3A\AUNq3FS.pdf
[4] http://www.sedar.com/GetFile.do?lang=EN&docClass=24&issuerNo=00003467&fileName=/csfsprod/data135/filings/01951541/00000002/C%3A\SEDAR\FILINGS\AUNLNREPORT10412.pdf
[5] http://www.geckoresearch.com/sites/default/files/Aurcana_Jan25_2013.mp3
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