INVESTMENT COMMENTARY — Star performer Aurizon expected to reach new production levels in ’97

A reserve of working capital, combined with a solid past performance, suggests that Aurizon Mines (ARZ-T) can look forward to a good year, according to analyst Donald Poirier of McDermid St. Lawrence Securities.

Poirier rates Aurizon a buy based on consistently strong operating results, a superior operating team, and the recent acquisition of the Douay West project in northwestern Quebec.

He notes that the Sleeping Giant mine, northwest of Val d’Or, Que., is expected to produce 50,000 oz. gold in 1996, exceeding its goal by about 6,000 oz. A 50-50 joint venture with Cambior (CBJ-T), the mine is operated by Aurizon.

The company’s impressive grade control is attributed to cautious mine planning, the use of a low cutting grade and plenty of leeway for dilution.

The mine’s average production grade in 1996 is projected at 13 grams per tonne (or 0.38 oz. per ton). High grades mean a low cash cost, in this case US$216 per oz. in the first three quarters of 1996.

Underground development at Sleeping Giant has consistently expanded reserves; the mine life there has increased to four years from three since production resumed in 1993. Three levels being developed below 600 metres have shown higher grades in drifts than were indicated by earlier drilling.

A production goal of 25,000 oz. at the Beaufor mine, operated by Aurizon in a joint venture with Louvem Mines (LOV-T), should be achieved following a difficult first quarter. The mine, situated northeast of Val d’Or, has performed with greater and greater efficiency, and costs, currently US$265 per oz., are expected to fall to around US$225-230 per oz.

Underground development indicates more mineralized material beyond delineated reserves, and the mine life there could increase as a result.

Meanwhile, the company’s Reyna property, in Mexico’s Sinaloa state, has been optioned to Cambior, which completed a drill program there last year and renewed its option for 1997. The resource at Reyna stands at 29 million tonnes grading 0.4 gram gold per tonne and 0.51% copper.

Poirier suggests investors will benefit from the deal Aurizon struck with Vior Mining (VIO-M) to take on exploration and development at the Douay West property, about 50 km north of Sleeping Giant. Both Cambior and Inco (N-T) have held interests at Douay, but Poirier notes that Aurizon specializes in small gold mines. “Douay is a project where Aurizon should be able to add value,’ he says.

Aurizon, which must spend $5 million on exploration and development by May 1998, plans to sink a 150-metre exploration shaft and drive two exploration drifts to evaluate Douay West. The Sleeping Giant mine hoists only half of the 900-tonne daily quota that can be processed at the mill, and Douay will serve as a source of additional mill feed.

Poirier predicts Aurizon will produce 40,000 oz. in 1997. In the first nine months of 1996, the Vancouver-based company generated revenue to the tune of $15.1 million, cash flow of $5.1 million (up 21% over the same period in 1995), and earnings of $2.8 million (up 4% to 8 cents per share) in the first nine months of 1996. Production cash costs were US$232 per oz.