Auriga looks to put Maverick back in the saddle

Auriga Gold (AIA-V) is looking to reanimate the Maverick Gold project 65 km northeast of Flin Flon, Manitoba.

To do it, the company is looking at a new way of mining the site’s Puffy Lake deposit, which was shuttered in 1989 after an array of underground mining problems.

Before it delved into the economics of a new mining method, Auriga had to confirm the project’s gold potential, and it did that in August with a maiden resource estimate showing high grades and good tonnage in the inferred category for the underground portion of the deposit.

With the mineralization confirmed, Auriga set out to test its plan, which sidesteps previous difficulties with underground mining at the site by mining lower-cost, near-surface tonnage via five open pits, which would generate near-term cash flows while the company fine-tunes the existing mill on site.

The preliminary economic assessment considers a test mine that would be in production for 17 months. Because the project would be considered a test mine, much of the revenue from gold sales would be used against capital investment and likely ward off the tax regime used in other mines, leading to pre-tax cash flows in its financial model.

Such a beneficial tax situation helped generate a $20.8-million net present value at an 8% discount rate, while the internal rate of return comes in at a very high 197% – which is not too shabby for a project that isn’t even considering commercial production.

The company used a US$1,400-per-oz. gold price, and while at first blush that number may seem aggressive, Auriga’s president and chief executive Richard Sutcliffe points out that the number is below the 12-month average gold prices, and justifiable because production is expected in 12 months and the mine will only operate for 17 months.

The mine’s other advantage is its very low capital expenditure (capex). Maverick has the mill on site from the past-producing mine and all Auriga has to do is refurbish it, which brings the capex to $15.6 million – a bargain-basement price for a gold mine in today’s market.

The study also estimated sustaining capital costs of $4.6 million in the first year of operation, with production cash costs estimated at US$660 per oz. gold.

On the permitting front, Sutcliffe explains that while the project came with permits thanks to its past production, the switch to open-pit mining in the test phase will require new allowances. He says that government officials have assured him that the 12-month time frame is realistic.

The project has open-pit indicated resources of 242,000 tonnes grading 4.16 grams gold for 32,000 oz., and inferred resources of 78,000 tonnes grading 3.81 for 10,000 oz.

Those high grades are mitigated, however, by high-strip ratios, which range between 9-for-1 to 16-for-1 over five pits.

The plan is to mill 530,000 tonnes of ore from five open pits while processing at a rate of 1,000 tonnes per day. That pace should fetch 70,000 oz. gold within the first year and a half of operations.

Once the open-pit resources are mined and Auriga’s understanding of the rock structure and its metallurgy improves, the real fun will begin.

Puffy Lake’s mineral wealth expands at greater depths, and the company plans to tap into the lower resource via underground mining.

Underground indicated resources stand at 702,000 tonnes grading 6.29 grams gold for 142,000 oz. gold, with inferred resources of 3.018 million tonnes grading 5.65 grams gold for 548,000 oz. gold.

The deposit remains open downdip and on strike, and hosts an ongoing drill program.

At presstime Auriga’s shares traded for 35¢ apiece within a 52-week trading range of 22¢ to 52¢. The company has 40.6 million shares fully diluted.