Aurizon sees productive year despite tough quarter (May 13, 2011)

Vancouver – A combination of low grades and machine troubles led to a difficult quarter for Aurizon Mines (ARZ-T, AZK-X), but the company reports that it expect to return production to normal as it also embarks on extensive exploration plans.

Aurizon went into the quarter knowing it had to mine through some lower-grade ore at its Casa Berardi mine in the Abitibi region of Quebec, but a forced change in the mining sequence and issues with older equipment had the daily throughput down to 1,789 tonnes compared with 1,985 tonnes for the same quarter in 2010. The lower tonnage had the company producing 12% less gold than planned.

First quarter production was 31,976 oz., compared with 35,188 oz. for the same period in 2010. The lower production also translated to higher cash costs per oz. of US$621 per oz., compared with US$538 per oz. in the first quarter of 2010, though a 5% increase in the Canadian dollar also had an affect.

Profits came in at $2.4 million despite the setbacks, the same as last years’ first quarter thanks in part to higher realized gold prices. The higher price also helped lead to a 43% increase in gross profit to $18 million and a 58% increase in cash flow from operations to $14.5 million, both compared to the first quarter of 2010.

David Hall, president, chairman and CEO of Aurizon, said in a phone interview that the mine plan sees more normalized production for the rest of 2010, with gold grades going back up to the more typical 8 grams per tonne rather than closer to 7 grams. Hall also noted that Aurizon has both ordered and leased new equipment, with the first pieces arriving this month.

“We don’t think we’ll suffer those equipment problems going forward,” said Hall.

Looking forward, Aurizon has slightly adjusted its 2011 production guidance at Berardi to 165,000 oz. gold from an earlier range of 165,000 and 170,000 oz. gold. Cash costs per oz., reflecting the strong Canadian dollar, have been adjusted to US$525 per oz. compared with the previous US$496 per oz. estimate.

Aurizon’s stock price dropped 30¢ on the day the results were released to end at $5.19 on 560,000 shares traded.

The temporary issues at Casa Berardi are a reminder of the potential risks of having only one operating mine, and Aurizon is investing heavily in developing other opportunities.

In what Hall described as “probably one of the most aggressive exploration budgets in the country,” Aurizon plans to spend $13.4 million in exploration around its Berardi property, plus $17.1 million over the next nine months to advance its Joanna property and several projects it optioned into last year.

Last years’ exploration on Casa Berardi let to a 44% increase in reserves at Berardi, extending the mine life from 6 to 10 years. Underground reserves now stand at 4.1 million tonnes grading 7.7 grams gold for a million contained oz. gold. Open pit reserves, sitting in an untapped area between the two mine shafts on site, stands at 3.8 million tonnes grading 3.7 grams gold for 452,000 contained oz. gold.

Hall said the open pit would not be mined anytime soon though, as the company is still exploring below the pit resource to evaluate underground mining potential.

“We want to make sure we’ve optimized the underground potential below that pit before we start mining it,” said Hall.

The entire exploration budget for 2011 will go into Quebec, as currently all of Aurizon’s projects fall within the province. Hall said the company is looking for opportunities throughout North America, but Quebec’s mining history, geology, infrastructure and the company’s base there make it quite attractive.

“We have the most leverage by getting involved in projects close to our technical base and our production base,” said Hall. “Also, because of the deals we did last year with companies like Niogold Mining (NOX-V), Typhoon Exploration (TYP-V) and Azimut Exploration (AZM-V), that’s increased out profile in Quebec in particular.”

With $152 million in working capital at the end of March, the company looks able to afford the exploration spending, though it plans to also spend $51.1 million on development work at Casa Berardi. Just in case, the company secured a US$50 million revolving credit facility in January.

By the fall the company also expects to have a feasibility study out on its Joanna project, which currently hosts a resource of 40.6 million measured and indicated tonnes grading 1.33 grams gold for 1.7 million contained oz. gold, plus 23.2 million inferred tonnes grading 1.19 grams gold for a further 887,000 oz. gold.

Aurizon plans to move Joanna forward and into production itself, and then do the same for its other Quebec properties.

“We’ve done it before and we want to do it again,” said Hall.