New Aurelian update "The Gold Discovery Lette
Subscribers of the premium service of www.golddrivers.com received the following update two days ago.
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Aurelian’s “World Class Discovery” - 10 million ounces of Gold
by Willem Middelkoop
July 18, 2006
We would like to update you on the biggest gold discovery in a decade by a junior exploration company. The speed and size of the discovery brings back memories of a classic Discovery case, the discovery of the Pierina Gold Mine by Arequipa Resources in 1996.
They found seven million ounces of Gold and within a few months time they were bought out by Barrick Gold for one million Canadian dollars.
And just like Aurelian the first correction started when the stock hit CAD$23. In both cases the correction stopped at CAD$15. The difference however is that Aurelian still finds itself in a very early Discovery stage. We already can expect resources that rivals the seven million ounces found in `Pierina`. And Aurelian’s best gold grades are probably about 5 times higher.
Even more reassuring is the fact that several independent analysts have visited the Condor project in Ecuador and verified the drill results. This is important, because of the ten year old memories about the Bre-X scandal in Indonesia. In that case the reported stellar drill results could never be verified by independent observers.
Sprott report last week:
David Stein (Sprott’s analyst) paid a visit to Aurelian’s Condor project last week.
He reported:
“- Overall observations: Wow, Fruta Del Norte is an intensely mineralized hydrothermal deposit where native gold (often visible) is associated with silica/quartz and sometimes pyrite. The common occurrence of visible gold is highly unusual for deposits like this, and suggests that the mineralization is much stronger than most other similar deposits--this has the characteristics to be a world class deposit…
- What is both interesting and encouraging is that the Bonza-Las Peñas zone, which was ARU's first discovery (500 koz @ 1 g/t) consists of several vein structures about 1 km directly south of Fruta Del Norte. In this zone we see the same type of intense mineralization as FDN but over a much smaller scale (10 m or less), so the same gold-rich-fluids were travelling around this large area, and the size of the zone may be related to intensity of the structures that host the gold. This implies that FDN could be larger (continuous to the south) and that other similar zones to FDN could be found.
- Based on the drilling reported so far, I think that ARU has defined a minimum of 7.0-7.5 MMoz (using uncut grade). Hole 59 reported last week was drilled a little closer to hole 58 than we initial thought so it didn't add as much E-W width, but the deposit is still completely open to the West.
-We are very confident that the deposit will be significant larger than that. Holes 64 and 65 have been drilled extending the strike length 200 m to the north, and both hit epithermal mineralization and visible gold (this was in the press release). Both appear to have at least 100 m of mineralization, although we cannot tell the grade. This means that the deposit may be (but not necessarily) thinning to the north, but is still open.
-With 64 and 65 hitting mineralization, we are confident that the next five holes will imply a deposit size in the range of 9 - 10 MMoz, with the main variable being the grade. Keep in mind that it will still be open to the north, and to the west, as well as the potential to add lower grade tonnage to the south. Holes #61, 62, 63 should be next to report, likely within the next 2 weeks.
-ARU is contracting two more rigs, at least one of which will be larger and capable of deeper drilling to really test the western zone at depth. By August we expect ARU to have 4 rigs on site (currently there are only 2), and we expect 1-2 rigs to continue to step out on FDN, 1-2 rigs will be in-filling and delineating FDN, and 1 rig will be testing regional targets like El Tigre.
-There are significant illegal alluvial (river) miners up-stream from FDN suggesting that there could be another gold deposit to the west and/or south of FDN, likely closer to surface since it is washing gold into the rivers.
-The fact that Corriente got its EIA approved for Mirador (just 15 km North) is a great indication of the government's support for mining. Most of the issues for ARU's gold mine would be the same as Mirador, in the same geographical environment. The disturbance could be much less for ARU, which may end up an underground mine. However cyanide will likely have been used to process the gold. By then both International Minerals' Rio Blanco (small) and Iamgold's Quimsacocha should be permitted, providing an even stronger precedent.
VALUATION
Without looking too much at the mining yet, we can throw together some rough numbers. Using GUY as a model, we could see ARU being worth at least $100/oz, potential more since larger deposits often get a premium. At 9-10 MMoz, you would be looking at a share price of $28-$32, and still you are getting additional upside at FDN and the regional targets for nothing. (GUY is trading at about $90/oz today including cash--we believe it will go higher)
Analysts from Canaccord Capital, another Canadian brokerage, also confirmed the distribution of gold grade relative to the visible gold in a recent report;
“The Condor area, where the Fruta Del Norte discovery was made, is a massive property, measuring some 70 kilometres in length. The Fruta Del Norte discovery has been traced over a 600 kilometre strike length, minimal 150 meter wide and 150 meter deep, remains open to the all directions”
Aurelian president and CEO Patrick F.N. Anderson stated recently: "We now see strong epithermal mineralization over a strike length of approximately 600M of the FDN system and it remains open to the south, west and north. We are improving infrastructure to the site and construction has begun on an all-weather road that will provide direct access to the FDN project."
This is only the third target drilled of about thirty targets on the Aurelian property. As indicated by the Sprott report there seems to be much more Gold on this property. In 2003 9 meters of 51 g/t of Gold were drilled at Aguas Mesas, one kilometre north of FDN. So after less then 15 drill holes, with all except two, presented spectacular results nobody expects this discovery to be complete.
To quote Winston Churchill: “This is not the end; this is only the end of the beginning”
Valuation:
So we count on at least 10 million ounces. That would make this a rare and extreme valuable ”World Class Gold Discovery”.
A quick calculation of the possible total metal value of this Discovery.
Take over bids are often made at 20-25% of these total metal value. So this gives us an indicative takeover price of at least one billion at this point.
So at the current market capitalization of a good Ca$600 million, the market is valuing this discovery on the low side. There is no premium, air or fantasy in the current share price.
Epithermal deposits, like this one, can be very large. The Lihir Island Ladolam deposit located at Papua New Guinea is one of the largest epithermal deposit ever found in the world. It has over 40 million ounces of Gold. It can take years to know how large the total system will be, given the large number of gold targets in the area.
Here are some examples of historical big Epithermal deposits.
Arequipa’s best eight holes averaged 78.25m @ 4.75g/ton. Compare that to ARU's 6 holes that averaged an astounding 198.17m @ 9.04g/t.
World Class Gold Deposits
A recent BHP Billiton study, presented June 8th, shows that `World Class Gold Deposits of over three million ounces are very rare, and very hard to find. After studying 143 discoveries between 1985 and 2003, BHP Billiton concluded that only seven 10 million+ Gold discoveries haven been made since 1985.
Since 1999, not even one was discovered. But more important they also discovered that 90% of the biggest discoveries aren’t stand alone deposits but were part of a mining camp. So gives extra credence to the idea that this Discovery is only the first major one with thirty other targets waiting to be drilled on a relatively small area.
On the website of Aurelian we found the following comparison of the best intersections of the world’s largest discoveries.
Conclusion
We can expect positive drill results of at least five more holes adding millions of ounces the coming weeks. The coming results will alert the mainstream press and other Gold letters which haven’t published this story so far. More and more investors will have a part of this one-in-a-lifetime discovery Aurelian. With only 30 million shares outstanding we think Aurelian at $21 is now less risky than at 90 cents a half a year ago. We buy all the dips.
Willem Middelkoop
The Gold Discovery Letter
www.golddrivers.com