Aureus rising in Liberia (May 23, 2011)

Fresh from its initial public offering in mid-April, Aureus Mining (AUE-T) is intent on adding Liberia to the list of significant West African gold mining countries.

Aureus was born out of the break-up of the former African Aura Resources, with Aura’s iron ore assets folded into the newly formed Affero Mining (AFF-V) and its gold assets being put into Aureus. 

Key personal from Aura’s gold division moved over to Aureus, and one of its most gold savvy board members, David Reading, took the reins as president and chief executive.

Aureus shareholders have good reason to feel confident with Reading at the helm, as the executive served as European Goldfields‘ (EGU-T, EGU-L) chief for over six years and before that headed up Randgold Resources‘ (GOLD-N, RRS-L) exploration team. 

Reading says his new role at Aureus reflects his optimism about the company’s gold assets.

“I was impressed by three things,” Reading says. “First there is the location – the project sits just 100 km from the coastline and 80 km of that distance is covered by a tar road, making development considerably easier. And then there is the grade and the exploration upside.”

In terms of grade, Aureus’s flagship project, New Liberty, indeed boasts some impressive numbers. The deposit currently holds 6 million tonnes grading 4.17 grams gold per tonne for 751,000 oz. gold in the indicated resource category, and another 7 million inferred tonnes at 3.4 grams gold for 762,000 oz. gold. The plan is to mine that tonnage via open pits.

With Aureus pushing towards completing a feasibility study by the end of the year, Reading says drilling could well add tonnage to those estimates.

“Even the deposit itself has been underexplored,” he says. “Only 28,000 metres have been drilled over a 1.75 km strike length, so there is still plenty of upside on the existing deposit.” 

Reading’s bullishness extends beyond New Liberty, as the deposit represents only a portion of its 1,000-sq.-km Bea Mountain property, which also hosts the Ndablama, Weaju, Silver Hills and Gondoja targets. Recent drilling at Ndablama returned 14 metres grading 2.86 grams gold and 10 metres of 2.77 grams gold.

Aureus holds a 25-year renewable mineral development agreement on the ground, which has seen very little modern exploration. 

“It’s a bit like going into the Northern Ontario mining camp, but back in the days when things were just beginning there,” Reading says of the area. 

The reason for a lack of exploration can be almost entirely chalked up to the political turbulence Liberians have witnessed over the last few decades as the country suffered through two civil wars and the corrupt leadership of Charles Taylor. 

With Taylor exiled in 2003 – he is currently on trial in international courts for his malevolent role in Sierra Leone’s civil war – Liberia is recovering with a growing economy supported by stable government.

A standard bearer of Liberia’s new era is its leader, the Harvard-educated and widely acclaimed President Ellen Johnson Sirleaf, who has stated that her government wants the resource industry to play a key role in the country’s continued economic development. 

So far there has been roughly US$18 billion of foreign direct investment pledged to the country, with a large majority of those dollars flowing into the resource sector. 

Many investors may balk, however, at putting money into a region which has been home to so much unrest – the most recent example being the violence and political stand-off surrounding elections in nearby Côte d’Ivoire.

“My view would be that the Côte d’Ivoire has just gotten through its democratic process, but Liberia has already been through it, and it came out with democratically elected government,” Reading says. 

The presence of big players like BHP Billiton (BHP-N, BLT-L) and ArcelorMittal (MT-N) in Liberia support Reading’s contention. 

But the presence of those two also points to another aspect of Liberia’s fledgling mining industry: it is largely based on iron ore. Indeed, the country was a significant iron ore producer in the 1970s. 

If Aureus has its way, however, it will prove that Liberia has significant gold potential, too. 

Helpfully, the country is situated on the Man Craton, a geological feature that has more in common with gold deposits in the greenstone belts of Guyana and eastern Brazil than it does with the rest of West Africa.

The connection between the geology of two continents separated by an ocean has to do with the formation’s genesis at a time when the two continents were still joined as a single supercontinent. 

The nearby gold deposits of Ghana, Mali and Burkina Faso are, in contrast, not part of the Man Craton, but are instead associated with the Birimian belt. 

“There’s no reason why the multi-million ounce deposits in Guyana and Brazil won’t be found here as well,” Reading says.

How was Aureus able to stake such a significant amount of land in Liberia? The answer has to with the former African Aura’s establishing itself in Liberia in the 1990s.

African Aura began exploring Bea Mountain in 1998 and, while it was granted its 25-year development agreement in 2001, the civil war in the country between 2001 and 2003 all but shut down exploration efforts.

With the free elections in 2005, however, the company got back to work and its perseverance was rewarded in 2010 when it was granted a class “A” mining licence for a production area of 457 sq. km – the area in which New Liberty sits. 

And Aureus doesn’t plan on letting that licence gather dust. 

The company has set an aggressive agenda for itself in the coming year as it looks to spend roughly half of the $40 million in its kitty on pushing ahead on a feasibility study at New Liberty, with the other half going towards drilling and exploring other priority targets.

Provided the feasibility study results are positive, Reading says construction at New Liberty could begin next year, with full production coming by the second half of 2013.

A preliminary economic assessment study on the project, filed at the end of last year, envisions building a US$100-million mine with the capacity to process 850,000 tonnes to turn out 100,000 oz. gold per year over an 8.5-year mine life. 

Using a US$1,200-per-oz. gold price and a 10% discount rate, the net present value of the project is calculated to be US$285 million.

Reading says extraction is straightforward, with 93% recovery rates and 50% of recovery coming from a gravity circuit with the rest coming from a carbon-in-leach (CIL) processing facility. 

There is also, he says, a good chance that the scale of the mine will be increased. 

“It’s a decent sized project to start with and hopefully, through infill drilling and outlining some satellite deposits, we will see an extension to 125,000 oz. of gold production per year,” he says.

Whatever the final size of the mine is, its construction will not only represent a milestone for Aureus shareholders, but also for Liberia.

“The government is very keen for us to get the country’s first commercial gold mine up and running,” Reading says.