Wednesday, August 31, 2011

AuRico Gold Intermediate Producer after wise acquisitions (Northgate Minerals, production, silver, 2012, exploration)

   Update for 4Q 2011 As reported on January 13, 2012 Aurico produced 72,119 ounces of pure gold (up from 29,384 in 2010) and 1.109 million ounces of silver (down from 1.2 million qoq), or 92,815 oz of gold equivalent (up from 53,030 qoq) during the three months ended Dec 31, 2011. Consolidated cash costs for the quarter were 67.1% higher to $680/oz due mainly to non Mexican operations in Australia acquired through the Northgate takeover (only produced 29,858 oz in the 2011 year but at a cash cost of $863/oz). North American operations finished the year at a cash cost of $499/oz (over 80% of production is still only coming from Mexico, Canadian projects won't start producing until 2012 at the earliest). Over the 12 months Aurico produced 187,401 oz of gold (up 64.3% from 114,064 oz) and 4.728 million ounces of silver (down 4.6% from 4.954 million yoy). The largest producing mine, Ocampo saw higher cash costs in the last quarter owing to lower grades being mined, while El Cubo's higher costs (up to $1,046 on the year) were due to a major conversion in its method of mining which may be part of the deal struck with workers in 2011 to raise standards at the mine, ending the shutdown. Ocampo still had relatively low production costs during the year ($413/oz in the 1st half, $436/oz in the third quarter). For the year Ocampo, which accounted for 72% of gold equivalent production had a cash cost of $415/oz (realized), down 5.0% (though it was $553/oz in the last quarter which could be an aberration considering Ocampo's cash costs have been inconsistent quarter to quarter throughout 2011 due to higher/lower grades being mined).

Stawell, AUS mine life ends in the second quarter of 2012 which you probably already realized considering 2011 4Q production between it and Fosterville was only 29,858 oz at a cash cost of $858/oz (2009 production there was 206,500 ounces, cash cost under $500/oz). Young-Davidson mine in Canada is 79% complete. Young Davidson will produce 180,000 ounces of gold a year for 15 years at a long term cash cost of $400/oz. El Cubo which was shutdown in 2010 had cash costs of $1,090 in the 4Q and $1,046 during the year BUT you have to remember that almost all of what El Cubo produces is silver (556,379 ounces in the quarter up 3.7% compared to only 8,670 ounces of gold).

Update for 3Q 2011 As reported by AuRico Gold on November 10, 2011 the company produced 45,686 gold ounces (up from 27,018) and 1.4 million silver ounces (up from 1.19m oz), or 76,630 oz of gold equivalent (up 68%) during the three months ended September 2011; All of the increases in production came from mines in Mexico meaning that the higher revenue and profit are not the result of the Northgate Minerals acquisition (Northgate's main properties are outside Mexico). Even though cash costs were up 9% to $487/oz margins were 55% higher ($1,217/oz) due to record breaking gold prices ($1,704/oz), that resulted in a 580% increase in profit (to $62.6M or 36c a share). The El Chanate mine became the first Mexican operation to record one million man hours of work without lost time injuries. Not all was rosy however, all of the production increases came from El Chanate and El Cubo two mines that produced neither gold nor silver in 2010, in 2011 they combined to produce 20,842 oz of gold (16,444 from El Chanate) and 308,528 oz of silver (all at El Cubo) while the company's main mine Ocampo showed negative production growth (-8% for gold production/-15.3% for gold sold and -10.5% for silver production/-20.4% for silver sold). Cash costs remained low at Ocampo ($436/oz) and high at El Cubo ($936/oz but down from 1,386/oz). Average realized gold price was $1,704/oz up 38.54% (from $1,230/oz), realized silver price was $38.13/oz nearly double what is was the year before ($19.19/oz). Higher production particularly from the smallest mine, El Cubo (gold equivalent ounces up to 11,360 oz from nil) propelled 2011 annual guidance up to a high of 195,000 oz from 189,000 oz. Range for silver is 4.95-5.0m ounces (up from 4.84-5.56). Cash costs for the year are on track to be $445-$475/oz. By comparison, in the first half of 2011 cash costs were $486/oz (even with Ocampo being $413/oz which is $23/oz lower than what it was in the 3Q).

   AuRico acquired Northgate Minerals on August 29, 2011 for US$1.49 billion which represents a whopping 46% premium to Northgate's average stock price in the previous 20 days, but a record low of 14.7 times EBITDA based on Northgate's earnings before tax, depreciation, ammortization in the previous 12 months, the lowest in a North American deal since 2004 when Goldcorp bought Wheaton (by comparison, Kinross Gold paid about 40 times more than EBITDA for Redback Mining). Ironically, Goldcorp is also the company that paid one of the highest premiums in a takeover, 56% higher than the average stock price for Andean
Resources in the 20 days leading up to the deal. (Bloomberg: Northgate Takeover Proving Cheapest) At a time when the price of gold is on the rise AuRico is being bold, making deals that most companies wouldn't think possible (AuRico made US$1.9 billion in takeovers since April 2011, that's 87% greater than AuRico's market value in 2010). (MorningstarAdvisers: Digging for Outliers in Gold Mining) Included in the deal is the $370 million Young-Davidson Mine in Ontario which could begin producing as early as late 2012 (3 million ounces/15 year mine life, Young-Davidson also has 1.5 billion pounds of copper). Also of note, Northgate's assets are scheduled to produce 75% more in 2013 than in 2011 compared to 40% for AuRico. AuRico also gains a foothold outside of Mexico for the first time. Ocampo, the company's biggest producing mine also produces silver at a rate of between 4 and 5 million ounces, annually. The two biggest operating mines, Ocampo and El Cubo each have their own ore processing mills with a capacity in excess of five thousand tonnes per day (combined). In the last quarter ended June 2011 the company's operating cash flow increased 247% and its 2011 pure gold production guidance increased to between 175 and 195,000 ounces, gold equivalent (includes silver) rising to 265-295,000 ounces (about 33% of total production comes from silver). (2011 2nd qtr report)

For AuRico, production costs are low (for the six months ended June 2011 it was $413/oz (2.4% lower) at its largest mine Ocampo which produces at a rate of just over 110,000 ounces annually, overall it was around $486/oz). Total production (after takeover of Northgate Minerals is complete) is comparable to Eldorado Gold, New Gold and Osisko mining, three companies that have a market value 2 to 3 times higher. Even after 2 deals in 5 months that boosted its size by more than 70% AuRico continues to be totally unhedged meaning that it is fully exposed to changes in the price of gold, not a bad position to be in at a time when gold investment is spiking (even debt laden nations like Greece are buying up the commodity, others like Thailand, Mexico, Russia, South Korea are increasing reserves).

The only downside of the deal is that it led to the break up of Northgate's takeover attempt of Primero Mining which would have given it another 3 million ounces of proven gold reserves at San Dimas, Mexico.

No comments:

Post a Comment