Beaufor sinks Aurizon’s quarter

Lower realized gold prices and the suspension of operations at the Beaufor gold mine in northwestern Quebec took a hefty bite out of Aurizon‘s (ARZ-T) bottom line during the three months ended March 31.

During the quarter, Aurizon posted a net loss of $1.3 million (or 3 per share) on revenue of 3.4 million, compared with year-ago earnings of $617,430 (2 per share) on $7.4 million. Operations consumed $270,000 during the latest quarter, compared with positive cash flow of $1.6 million in the first quarter of 2000.

The company’s total gold production for the quarter fell to 8,281 oz. from 16,503 oz. a year earlier. The decrease was due mainly to the cessation of operations at Beaufor last August, due to concerns over pillar stability. Aurizon expects gold production for 2001 to tally 31,500 oz. at US$230 per oz.

In early May, the company completed the sale of its 50% interest in Beaufor to Richmont Mines (RIC-T). Aurizon received $1.65 million in cash upon closing and retains a sliding-scale royalty on any future production.

Aurizon will receive a $5-per-oz. royalty on half of the first 220,000 oz. gold produced at Beaufor, if the prevailing gold price is between US$280 and US$300 per oz. If the price is US$300 per oz. or higher, this will increase to $12.50 per oz.

When production from Beaufor exceeds 220,000 oz., Richmont will pay a royalty ranging from $17 to $30 per oz., depending on the gold price. This royalty will also be payable on 100% of any future production from the adjoining Perron property, which is included in the deal.

During the recent quarter, gold production at the Sleeping Giant mine in Quebec was less than a year ago. Aurizon’s share of production was 8,281 oz., compared with 10,066 oz. Total cash costs between the two periods increased to US$220 per oz. from US$195 per oz. Aurizon has a half-interest in Sleeping Giant. Cambior (CBJ-T), the operator, holds the other half.

Aurizon realized an average of US$264 per oz. for its gold production during the quarter. This was equal to the average spot price, but down from US$295 in the same period of 2000.

At the end of March, Aurizon had a net working capital deficiency of $3.7 million. This included an unsecured debt of $3.9 million, which is the discounted amount of a $4-million payment due in August.

Aurizon notes that its only source of cash flow is its stake in the Sleeping Giant mine, but, due to weak gold prices and lower production, current cash flow from operations is insufficient to meet the company’s continuing obligations. The sale of Beaufor was one of a number of initiatives to address the liquidity problems. Aurizon also plans further cost-cutting measures, which may result in one-time restructuring charges.

Aurizon is in discussions with several major mining companies regarding financing alternatives for the development of the advanced-stage Casa Berardi gold project, also in northwestern Quebec.

“In Casa Berardi, Aurizon has a quality asset with a significant gold resource, good infrastructure, excellent exploration potential and a large prospective land position,” says David Hall, Aurizon’s president. “In any renewal of investor interest in junior gold companies, Casa Berardi can add significant value to Aurizon.”

In the spring of 2000, a positive feasibility study at Casa Berardi envisioned a mine capable of producing 200,000 oz. gold annually over a mine life of 7.5 years, with 2,800 tonnes milled daily. Capital costs were pegged at $121 million. This includes an expansion of the existing 2,000-tonne-per-day mill and the sinking of a shaft in the West zone.

Aurizon bought the closed mine from TVX Gold (TVX-T) in 1998 for $6 million and a net smelter return royalty. At the end of 2000, $3.8 million in long-term debt related to the acquisition was re-classified as a current liability. It comes due Aug. 27.