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Aureus updates New Liberty’s feasibility study

Aureus Mining (AUE-T, AUE-L) has updated a definitive feasibility study for its fully permitted New Liberty gold project in northwestern Liberia, confirming promising economics for what could become the country’s first commercial gold...



Aureus Mining (AUE-T, AUE-L) has updated a definitive feasibility study for its fully permitted New Liberty gold project in northwestern Liberia, confirming promising economics for what could become the country’s first commercial gold mine.

The study — conducted to further de-risk and improve the project — shows the open pit operation could produce an average of 107,000 oz of gold per year grading 3.4 g/t over an estimated eight year life.

Compared to the previous October 2012 feasibility study, the throughput for the initial six years is slightly higher at 119,000 oz a year, with total production over the eight years growing to 859,000 oz from 846,000 oz, previously.

The boost in total production came on the back of a small bump in reserves, which now stand at 8.5 million tonnes grading 3.4 g/t Au for 924,000 oz.

Initial costs to get Aureus’ first mine built has dropped 2.9% to US$136 million, excluding the contingency of US$13.6 million. Operating cash costs improved by 2.5% to average US$668 per oz, down from US$685 per oz.

“The New Liberty feasibility studies present an attractive project at US$1,400 per oz gold, but continued price volatility may make committing to development difficult in the near term,” BMO Capital Markets analyst Andrew Breichmanas wrote in a note.

As part of the optimized work, Aureus relocated the tailing storage facility and plant to more central positions south of the pit as well as moved the waste rock dumps. The plant is now closer to the new tailings which should lower pumping costs, while the waste rock dumps now wraps around the pit reducing haulage costs.

In an effort to improve processing costs, the debt free firm completed additional metallurgical studies, confirming gold recovery of 93% during the mine’s first six years, before slipping to 90% in the last two years as lower grade stockpiles are processed.

Moreover, those studies improved leach kinetics, reducing the cyanide consumption by 66% and halving the CIL leach residence time from 48 hours to 24 hours. As a result, Aureus removed two CIL tanks and one large pre-oxidation tank from the proposed plant, trimming costs.

“However, the benefits of the process optimization appear largely offset by incorporating a fully new fleet to minimize operation risk, reduce maintenance requirements and improve reliability,” Breichmanas said, noting the previous feasibility study used a mixed fleet of new and old machines.

The London-based analyst adds the refined pit design and mining schedule requires 11% more waste to be removed in the first four years of operations, adversely impacting cash flow.

The annual waste mining rate equals 25.9 million tonnes in the first four years and 6.4 million tonnes in the last four years. That averages out to be 16.2 million tonnes of waste mined a year over eight years. The life of mine strip ratio is 15.5-to-1.

Using a flat gold price of US$1,400 per oz, the project should generate total revenue of US$1.2 billion and pre-tax cash flow of US$353 million.

“The economics don’t appear to have meaningfully improved [with the update],” Breichmanas continued in the note.

Using a US$1,400 gold price and 5% discount rate, New Liberty’s post-tax net present value rose to US$165 million from US$164 million previously, while the post-tax internal rate of return fell from 26.7% to 23.8%.

That said, the economics appear robust enough for Aureus to continue project construction, which it started in late 2012, after closing a US$80-million private placement to fund development. To date, it has completed earthworks at the plant, tailings and stream diversion sites. Plant commissioning and gold production remain on track to start in December 2014.

To fund the majority of the initial costs, Aureus is lining up a US$108 million debt facility with two South African banks, Nedbank and Rand Merchant Bank. It expects to finalize the loan agreements in the third quarter, following credit committee approvals.

At the end of March 2013, Aureus had US$68.9 million in cash.

On the updated feasibility news, the company slipped 3.3% in Toronto to close May 21 at 58¢.

Breichmanas rates the stock as “outperform” but has reduced his target price to 75¢ from $1.

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