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RE: Canaccord Recommends AUR - Detail

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STRONG BUY Aur Resources Inc. (AUR : TSE : $3.24 : Issued 90.7M) Greg Barnes [phone] HIGHLIGHTS * We expect that Aur Resources will have sufficient cash resources to make pre-payments on the Quebrada Blanca acquisition facility (US$170 million) as soon as August * Our forecasts indicate that the company could generate US$30 million in free cash flow in 2001 Recommendation: STRONG BUY Target price: $4.50 52-week price range: $3.65-1.75 Shares O/S: basic 90.7M Working capital: US$75.8M Long-term debt: US$196M Market capitalization: C$294M Enterprise value: C$595M Sector: Metals & Minerals Web site address: www.aurresources.com When Aur Resources acquired the Quebrada Blanca Copper Mine (QB) in Chile in late-2000, the company assumed a significant level of debt. As of March 31, 2001, the company was carrying US$205 million in debt including the current portion of long-term debt and the US$29 million equity portion of convertible debt). Of the US$205 million debt, US$170 million comprises the Acquisition Credit Facility provided to the company by its banking syndicate. The remaining US$35 million is in the form of convertible debt owed to Teck-Cominco. The Acquisition Credit Facility is repayable over a period of six and one-half years via semi-annual payments. Aur is required to re-pay the US$35 million in convertible debt by December 31, 2003. Aur has the option of satisfying the $35 million by issuing common shares. It is our understanding the Aur management does not intend to issue shares to meet the re-payment to Teck-Cominco. In 2001, Aur's scheduled principal repayments on the Acquisition Credit Facility total US$8.48 million (the repayment schedule is outlined below). US$4.24 million is due June 30 and an equal amount is due December 31. In addition to scheduled repayments, between 40% and 100% of excess cash generated by the company is required by the banks to be utilized to pre-pay the acquisition facility (i.e. cash sweeps). It is our understanding that these additional repayments are to be made 45 days following the scheduled repayments. This means that the first pre-payment on the debt can be made in mid-August. In 2001, Aur is forecasting capital expenditures totaling approximately US$16 million. Most of this will be spent at the QB operation to connect the mine to the national electricity grid and for other process improvements. The company is also required by its bankers to maintain cash at the corporate level of US$15-20 million. At the end of March 2001, the company had US$20.7 million cash at the corporate level and total consolidated cash of US$46.4 million. We expect, notwithstanding low copper prices (spot copper prices were US$0.75 per pound yesterday on the LME), capital expenditures, and the requirement to maintain minimum levels of cash, Aur should have the ability to make prepayments on its long-term debt in August of between US$4-6 million. We also expect that the company should have the ability to make another pre-payment in mid-February of 2002. We believe this speaks to the strong cash flow generating ability of the QB operation even in a depressed copper price environment. It also reflects the fact that approximately 70% of Aur's production in 2001 is hedged at a copper price of US$0.87 per pound. At the end of March 2001, Aur's net debt to net debt plus equity ratio was 45%. Taking into account both scheduled debt repayments and pre-payments in 2001, we expect that the ratio should drop to approximately 40% by December 31, 2001. By mid-2003 (within two years), we expect that the net debt to net debt plus equity ratio should fall to below 20%. Revised EPS, CFPS, and NAV Estimates Our NAV is C$3.85 using a 10% discount rate and a long term copper price of US$0.85 per pound. At a US$0.90 per pound long-term copper price our NAV increases to $4.45 per share and at US$0.95 per pound our NAV is $5.00 per share (again, both at 10% discount rates). A US$0.10 per pound increase in the copper price impacts EPS by US$0.16 and CFPS by US$0.25. We are maintaining our STRONG BUY recommendation and our $4.50 target price (3.5 times 2002 CFPS).