Aura Minerals suspends mining at Aranzazu

Aura Minerals (TSX: ORA; US-OTC: ARMZF) has become the latest casualty of slumping commodity prices, unresponsive financing markets and fixed costs: It is suspending mining operations temporarily at its Aranzazu copper-gold-silver mine in Mexico.

The company notified shareholders before markets opened on Jan. 15, a day after the copper price dipped to US$2.55 per lb., a 5.2% drop on the day and its lowest level since 2009.

In the three months ended Sept. 30, 2014, the company’s Aranzazu mine in northeastern Zacatecas state recorded an average cash cost per lb. copper net of gold and silver credits of US$3.06 per lb., on production of 3.86 million lb. copper.

The company has been trying to raise money to expand the mine from 2,600 tonnes per day to 4,500 tonnes per day, but the markets have been uncooperative.

“We just don’t have the free cash flow for the Aranzazu expansion itself and at the current run rate, it is cash-flow negative,” president and CEO Jim Bannantine explains in an interview. “We’ve always planned to expand it, we just need external financing, and these markets are tough.”

Aranzazu consists of both open-pit and underground operations and the 2,600-tonne-per-day mill produces a copper-gold-silver concentrate using conventional flotation. (While mining operations will be suspended, copper concentrate will be processed until the stockpiles are completed.)

In November the company forecast that full-year production in 2014 would be between 15.5 million and 17 million lb. copper, at a cash cost per lb. copper produced of US$2.60 to US$3.15 per lb. Preliminary production figures for Aranzazu in 2014 released on Jan. 19 show the mine produced 14.6 million lb. copper, in a 7% increase over the 13.62 million lb. copper produced in 2013.

Bannantine says the company will spend the first half of 2015 reviewing mine and development plans, site costs and capital expenditures, and hopes to complete a feasibility study by mid-year. The deposit remains open at depth and along strike.

“We’re updating the specs on the asset and allowing for the copper market to hopefully adjust and improve, and allow for mine finance to improve,” he says. “We believe it will be a good asset in the future.”

He adds that “we just can’t burn money every month while we’re working on the financing,” and notes that the company still has two producing gold mines: San Andre in Honduras and Sao Francisco in Brazil.

“We’re keeping our helmets on and battening down the hatches until the markets improve,” Bannantine says. “We’ll be okay during that time, judging from the way our gold mines are operating.”

Cost-cutting has also helped improve the company’s bottom line. Over the last two years, management has pared costs at the two gold mines by 25% and slashed corporate general and administrative expenses during the same time period by 45%, he says. (The CEO flies economy class to Brazil.)

In addition to its three mines, Aura owns a copper-gold-iron development project in Brazil called Serrote da Laje.

Aura acquired Aranzazu in 2008 and the mine entered production in February 2011. 

Aranzazu is 250 km northeast of Zacatecas City and 112 km southwest of Saltillo. 

In 2015, the company forecasts capital expenditures will reach US$11.5 million, of which US$1 million will be spent on an updated bankable 43-101 report for Aranzazu.