Aurelian Answers Nay-Sayers With Solid Drill Results
By Ben Abelson
08 Jul 2006 at 12:36 PM
NEW YORK (ResourceInvestor.com) -- Since first really emerging onto investors' radar screens in early April, Aurelian Resources [TSXv:ARU] has been on a non-stop tear thanks to world-class drill results from the company's wholly-owned Condor property in Ecuador. The news, which has been revealed in piecemeal fashion over the past several months, has sent the company's share price from around C$2 in April to a high of C$23.40 late last month.
Since then, however, the stock has gone into a mini-panic, as rumours of core salting and contamination arose in heavily-trafficked investor bulletin boards and chat rooms. Shares of Aurelian dipped below C$16 late last week as the "news" hit the marketplace. Instead of responding directly to the results, Aurelian has fought back the best way possible: with continued strong drill results.
But with investors having been burned in the past on Bre-X and other promotional scandals, is it safe to say that Aurelian is the real thing?
Once in a Decade Results
After several years of exploring Condor, the Aurelian appears to have literally struck it rich with the unearthing of a new epithermal gold discovery on the property. Dubbed the FDN target, drill results have been nothing short of amazing - leading several analysts and industry watchers to label the results among the best seen in the past decade. In April, the company reported results of 237.25 metres of 4.14 g/t gold, which were followed in early June by 204.8 metres averaging 8.4 g/t.
While the stock is still trading below its late June highs, Aurelian appears to have calmed at least some investor concern with the results it released after being halted July 6. Highlights included an intersection of 5.9 g/t gold and 20 g/t silver over 195 metres, and 5.54 g/t gold plus 8.0 g/t silver over 81 metres.
Even more reassuring is the fact that multiple independent analysts have visited Condor and visually confirmed these results (unlike with Bre-X and other such debacles). Based upon their reports, the possibility of core salting (the process of pumping up drill results by essentially planting gold in a sample before it is assayed) appears extremely remote.
A note from the minerals team at Canaccord Capital, a Canadian brokerage, provides some insight to back this up. According to them, the distribution of gold grade relative to the visible gold seen firsthand by their analysts seems appropriate. Contamination also seems unlikely, since the samples from Condor were derived from sections of core - not washed cutting. While there's always the potential for sampling error, quality control of the core samples was reportedly very good, and geologists split the core in areas deemed to be most representative.
Of course, with any drill results there are always various factors that come into play. Based on this and other analyst findings, however, it appears that the results from Condor are the real thing.
Potential Size of Resource
Condor is a massive property, measuring some 70 kilometres in length. FDN itself has been traced over a 600 kilometre strike length, according to company management, and remains open to the south, west and north. Depending on which analysts one consults, and based upon recent drill results, a deposit containing up to 32 million tonnes at 8 g/t gold has been estimated - or 6.8 million ounces of gold. While this estimate is obviously a moving (and very preliminary) target, at the current market capitalization of C$522 million, the market is only valuing Condor at approximately C$76 per in situ ounce (or about US$68/ounce). While this isn't dirt cheap, it's definitely on the low side - especially when one considers the valuations above US$100/ounce for some other high flying explorers.
While Aurelian's actual worth will depend on the resource that's finally delineated at Condor, that prospect is several years away at best. Given Aurelian's still-reasonable valuation, it's more likely that with further solid drill results the company will be snatched up by a senior producer eager to focus its attention on developing new operations in the Americas.
Political Discount
Aurelian shareholders should be aware of political factors in Ecuador that are similar to those affecting other Latin American countries.
In late May, Ecuador annulled U.S.-based Occidental Petroleum Corp.'s [NYSE:OXY] contract and seized its facilities over a contract dispute. The country has also signed two bilateral energy-related trade accords with socialist-leaning Venezuela. And, finally, Ecuadorian President Alfredo Palacio only gained power when former President Lucio Gutierrez was deposed after popular protests in April 2005. In the past year, Palacio's administration has been hit by strikes and protests in the oil industry, as well as strong popular opposition to a proposed free trade agreement with the U.S.
Conclusion
Investors worried about missing the boat on Aurelian could certainly work their way into a small position in the stock. However, given the stock's tremendous volatility of late, and the rumours that continue to circulate, it's more than likely that the company's shares will see further corrections in the future. Right now, speculators are extremely hot on Aurelian. When that fervour cools off (as it inevitably will), short-term declines on the order of 30% or more certainly aren't out of the question. Investors willing to take advantage of others' short-sightedness would probably do well to wait for one of these opportunities.
When it comes to fundamentals, however, Aurelian certainly seems well positioned to continue delivering solid results from its developing property. When bought on the dips, the shares make a nice addition to a diversified portfolio of junior explorers.
© Copyright 2006, Resource Investor.
resourceinvestor.com |
