Investment Comment Canadian gold exposure makes Aur a buy

For investors on the look-out for a company with excellent exposure to Canadian gold exploration and future gold production of between 50,000 and 100,000 oz annually, Davidson Partners Ltd. recommends Aur Resources as a sensible buy.

While the Toronto-listed Aur is still perceived by many investors as a junior gold oriented exploration company, it appears to have sufficient reserves on key properties to commence production in l988, says analyst Paul Esquivel in his recent investment research report.

The properties which include Aur’s, First Canadian, Norlartic and Orenada projects in the Val d’Or area of Northwestern Quebec, contain approximately 335,000 oz of gold. “Potentially, those reserves could double within the next two years,” said Mr Esquivel.

The company also has 31 additional projects in various stages of exploration but if current predictions prove correct, Aur’s initial gold production will almost certainly come from its First Canadian project.

During l986, Aur sank a shaft on the property and completed underground drilling and drifting above a vertical depth of 1,000 ft. After encountering g rades of 0.85 oz from muck samples on the Kierens zone, the company has opted to deepen the shaft from 750 ft to 1,400 ft.

Drifting will occur on the 1,300 level while the company will drill from the 1,000 ft level to test down to 1,600 ft.

Aur’s l987-88 exploration program will attempt to outline total reserves of 1.5 million tons above the 1,600 level and over a strike length of 1,000 ft. According to the research report, the deposit is currently open on strike in both directions.

Following this year’s work program on First Canadian, Aur will proceed with a production feasibility study.

According to Mr Esquivel, the Kierens zone at First Canadian would be the main source of gold for proposed production. Based on a grade of 0.3 oz gold per ton and 500 tons per day, cash costs are expected to be approximately $180(US) per oz.

Since the First Canadian property is located next door to its Norlartic property, (a former mine site at which Aur has also undertaken exploration work) when a production decision is made on the Kierens zone, existing development on the Norlartic side should provide quick access.

The former Norlartic mine produced 1,187,000 tons grading 0.13 oz gold from 1959-66. Current reserves, based on past and recent work stand at 861,000 tons of a similar grade above the 1,000-ft level.

Drilling on the North Zone last year established a strike length of 1,200 ft and gold mineralization to a depth of 900 ft.

Joint venture partner Cogesco Resources has agreed to provide $5.2 million to earn a 30% interest in the Norlartic property.

Also located in the Val d’Or area is Aur’s Orenada property, where $6.8 million is being spent on shaft sinking and underground drilling. Predecessor company Brominco Inc. outlined a deposit in Zone 4 of 740,000 tons grading 0.16 oz gold above 850 ft.

Combined annual production from these principal properties is estimated at between 50,000 and 100,000 oz of gold. However, a significant increase in reserves would justify construction of a large mill to accommodate a throughput of 1,000 tpd, says Mr Esquivel.

Aur shares were trading recently on the Toronto Stock Exchange at $9.50, well below its 52-week high of $15 but above its $2.40 low point.

But Mr Esquivel claims that with gold at $400(US), the stock is undervalued. “At four times the present value ($13.38 when the report was written), Aur should be trading at about $20.50 without increasing its reserves at all,” he said.

With no debt to worry about, Aur has $13 million in flow-through capital and working capital of about $4 million.

In l986, Aur pretax earnings amounted to $1.4 million, or $700,000 after taxes from its subsidiary, Techdel International, and the former expects to earn $2.5 million before tax during l987.

While cashflows indicate that capital costs could be paid back in a relatively short time, since Esquivel’s calculations are susceptible to the size of the proposed mill, he is withholding earnings projections until Aur’s feasibility study is completed and more tangible data becomes available.