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Golden Opportunity Lies in the Details

Guest Commentary - Rick Mills

User Rating: / 2

Richard (Rick) Mills
Ahead of the Herd


As a general rule, the most successful man in life is the man who has the best information

On January 14th 2013, Alamos Gold Inc. announced it had acquired 23,507,283 Aurizon shares as a result of share purchase agreements between Alamos and certain shareholders of Aurizon. The 23,507,283 shares acquired represent approximately 14.3% of the issued and outstanding Aurizon shares.


Alamos also announced it had commenced a formal offer to acquire the rest of the issued and outstanding Aurizon Shares.


Aurizon will produce 127,000 ounces of gold at cash costs of $719/oz in 2013, ramping up to 153,000 oz in 2014 at estimated cash costs of $696/oz.


Alamos is trying to buy Aurizon for Casa Berardi and Joanna.


Aurizon’s Casa Berardi mine currently hosts 1.5 million ounces of reserves at a grade of 5.3 g/t, and 1.5 million ounces in measured and indicated resources at a grade of 4.3 g/t.


The Joanna project is Aurizon's 100 percent owned primary development project located in the Cadillac Larder Lake Break, between the towns of Rouyn-Noranda and Cadillac in Quebec. The property currently hosts 1.7 million ounces in reserves at a grade of 1.3 g/t and 0.9 million ounces in measured and indicated resources at a grade of 1.3 g/t.


While Aurizon has other projects on the go one in particular stands out - the option/JV deal between Aurizon and NioGold Mining Corporation (TSX-V: NOX)


In July 2010 NioGold entered into an option and joint venture agreement with Aurizon Mines Ltd who may earn a 50 percent interest into the Marban Block property (eight percent of NioGold’s land package in the Val d’Or-Malartic area) by spending $20 million and at the conclusion of the three year current deal prepare and publish an updated resource and then proceed to make a “resource payment” for 50 percent of total estimated gold ounces as follows:

  • C$30.00/oz in the Measured and Indicated categories (C$40/oz if gold +US $1,560 oz)
  • C$20.00/oz in the Inferred category (C$30/oz if gold +US$1,560 oz)

As it presently stands that would be a $38.8m payment to NioGold with at least Phase 2 results to be added into another resource estimate. The current resource estimate stands at 2,069,000 ozs of gold with 1,559,000 of those gold ozs in the measured & indicated category and 510,000 ozs in the inferred (with over 75 percent of those ounces in the M&I category this bodes well for overall resource quality) the size of the resource is sufficient to support 150k+ oz’s of gold production over a ten year mine life.


A capping of 25 g/t was applied to the resource estimate and the effect was to reduce ounces and grade for the Marban deposit by 31 percent or 650k ounces. The capping of assays is required when high grade outliers (for example, 906 grams gold over 2.9 meters) may have a disproportionate influence on the average gold grade.


A 25 g/t top-cut may be conservative:

  • Aurizon’s Joanna project had a 15 g/t Au top-cut which reduced the resource by 5-6 percent
  • Osisko Mining 15 km to the northwest recently opened their new Canadian Malartic mine hosting a reported 10.7 million ozs of gold. Osisko used various caps reducing the resource by an estimated 2.35 percent
  • Agnico Eagle’s Goldex did not have a top-cut
  • Alexandria Minerals’ Akasaba deposit also did not have a top-cut

"Results obtained with the first phase program confirm that gold distribution indicators, such as ounces per vertical metre are comparable to other major deposits in the Abitibi belt and create a strong incentive to accelerate the exploration of the Marban deposit." Martin Demers, P.Geo., Aurizon's Manager of Exploration

Aurizon had indicated they planned another resource update to be released before the July 2013 third anniversary date incorporating Phase 2 drilling. Analysts reports have this next resource estimate between 2.5 to 3m ozs.


Aurizon has spent $11 million leaving $9 million to be spent on the Phase 3 program by the third anniversary (July 2013) to earn their initial 50 percent.


Aurizon may increase their interest to 60 percent by delivering a feasibility study and to a 65 percent interest by arranging mine financing.


As things stand right now Aurizon hasn't earned a one percent, let alone a 50 percent interest in Marban. There is still $9m yet to be spent, and the 50% resource payment to be made, to get that earn in.


This writer thinks Alamos will like the Marban Block deal and decide to continue Aurizons option if they are successful in their bid.


If Alamos doesn’t like the deal then the door is open for Niogold’s neighbor, Osisko (TSX:OSK), or somebody else, to step in.


And that’s what I really like about Alamos’s bid for Aurizon. You see the deal with Aurizon, or maybe Alamos, is only paying NOX shareholders $40 & $30 (with gold +$1560.00) for those ozs. If the JV dies then those ozs, and all the rest, belong to NOX and they are worth considerably more in a buyout, up to $100 per.


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