Aureus takes a fresh look at New Liberty

Aureus Mining (AUE-T, AUE-L) has updated a definitive feasibility study for its fully permitted New Liberty gold project in northwestern Liberia, confirming promising economics for what could become the country’s first commercial gold mine.

The study shows an open-pit operation could produce an average of 107,000 oz. gold annually over an eight-year life, at a head grade of  3.4 grams gold per tonne.

Compared to the October 2012 feasibility study, the throughput for the first six years is slightly higher at 119,000 oz. a year, with life-of-mine gold production growing to 859,000 oz. from 846,000 oz.

The boost in total output comes on the back of a small bump in reserves, which stand at 8.5 million tonnes grading 3.4 grams for 924,000 oz.

Other highlights include the initial cost to build the mine dropping 2.9% to US$136 million (excluding the US$13.6-million contingency), and operating cash costs improving by 2.5% to US$668 per oz.    

But BMO Capital Markets analyst Andrew Breichmanas remains cautious.

“The New Liberty feasibility studies present an attractive project at US$1,400 per oz. gold, but continued price volatility may make committing to development difficult in the near term,” Breichmanas writes in a note to clients.

As part of the optimization, Aureus has relocated the tailing storage facility and plant to central positions south of the pit, and has repositioned the planned waste-rock dumps. The plant is closer to the new tailings, which should lower pumping costs, while the waste-rock dumps wrap around the pit, which reduces hauling costs.

To improve processing costs, the firm completed more metallurgical studies for the new feasibility, confirming 93% gold recoveries during the mine’s first six years and 90% in the last two years, as lower-grade stockpiles are processed.

Moreover, those studies improved leach kinetics, reducing the cyanide consumption by 66% and halving the carbon-in-leach (CIL) residence time to 24 hours. As a result, Aureus removed two CIL tanks and one large pre-oxidation tank from the proposed plant, trimming costs.

“However, the benefits of the process optimization appear largely offset by incorporating a new fleet to minimize operation risk, reduce maintenance requirements and improve reliability,” Breichmanas says. The October study envisioned using a mixed fleet of old and new equipment.

The London-based analyst adds that the refined pit design and mining schedule requires 11% more waste removal in the first four years of operation, which would dampen cash flow.

The annual waste mining rate equals 25.9 million tonnes in the first four years and 6.4 million tonnes in the last four years. This averages to 16.2 million tonnes of waste mined per year over eight years. The life-of-mine strip ratio is 15.5 to 1.  

Using a flat gold price of US$1,400 per oz., the project should generate total revenue of US$1.2 billion and a pre-tax cash flow of US$353 million.

“The economics don’t appear to have meaningfully improved [with the update],” Breichmanas says.

At a US$1,400 gold price and 5% discount rate, New Liberty’s post-tax net present value moved up to US$165 million from US$164 million earlier. However, the post-tax internal rate of return fell from 26.7% to 23.8%.

Despite that drop, the economics remain relatively robust. Aureus is continuing with construction, something it kicked off in late 2012 after closing an US$80-million private placement to fund development. 

To date, it has completed earthworks at the plant, tailings and stream-diversion sites. Plant commissioning and first gold production are slated for December 2014.  

To fund the remaining development costs, Aureus is lining up a US$108-million debt facility with two South African banks: Nedbank and Rand Merchant Bank. It anticipates finalizing the loan agreements in the third quarter, after credit committee approvals.

At the end of March 2013, Aureus had US$68.9 million in cash, and no debt.

On the updated feasibility news, the company slipped 3% to close May 21 at 58¢.

Breichmanas has cut his target price to 75¢ from $1, and rates the stock as “outperform.”