RE:RE:RE:RE:New high today elgin1,
I am asking the same question about Rio Novo, as you are asking about ORA. Am I better off buying Rio Novo shares and let them be consolidated into Aura Minerals shares or do I buy more ORA at the ask?
Since I live in the USA, the market makers current price on ARMZF is $2.29, so if I can buy shares of RIVVF at less than 12.1 cents per share, then I am better off buying Rio Novo shares than buying ARMZF. Are there Rio Novo shareholders that are disgusted at the .053 shares of ARMZF being offered per Rio Novo Share? The answer is probably, so maybe now is a good time to pick up Rio Novo shares?
So let's say that you are invested in 100,000 shares of RIVVF at 10 cents per share. That is $10,000 USD invested, and after the proposed transaction, you will be left with 5300 shares of ARMZF. Are 5300 shares of ARMZF worth more than 100k of RIVVF? To answer that question, let's compare Alio Gold which closed at $3.62 USD today. ALO has 43.6 million shares outstanding, and has a market capitalization of $154 million dollars.
ARMZF has 36.5 million shares out, and after Rio Novo shareholders get their 7.3 million shares of ARMZF, then the share float of ARMZF will be identical to the share float in ALO. So now let's compare the producing assets.
In the case of ALO, the single producing asset is the San Francisco heap leach mine in northern Mexico, not to be confused with the Sao Francisco mine of Aura Minerals in Brazil which is on care and maintenance. Aura Minerals has a heap leach mine in Honduras which is one of the two core producing assets of ARMZF. The following chart shows the quarterly gold production of the San Andres mine in Honduras with Alio Gold's San Franciso mine in Mexico.
The graph above shows the ounces of gold placed on the heap leach each quarter compared with the quarterly gold recovered from each heap leach project. If you compare the ounces of gold added to the heap leach compared with quarterly gold production, you can see that Aura Minerals gets nearly 100 percent gold recovery for each ounce of new gold added to the heap leach.
In contrast, because Alio Gold's heap leach pad is relatively new, the amount of gold recovered from the heap leach pad was only 63 percent of the 25,502 ounces placed on
the pad during the quarter or 16,067 ounces of gold. Alio Gold has already reported its Q4 2017 production, but Aura Minerals has not reported its production yet, so that last red
data point is my estimate for gold recovery at San Andres which is 22,280 ounces of gold. San Andres gold sales should be 19,280 ounces compared to 15311 ounces in Q3 2017.
The following graph shows a comparison of Alio's San Francisco mine in Mexico with Aura Minerals San Andres mine in Honduras with data from 2012 to 2017. The dashed green line shows the total quarterly ounces of gold placed on Alio's San Francisco heap leach pad, while the solid blue line shows the corresponding data for Aura Minerals' San Andres mine in Honduras.
The purple dashed line shows the total quarterly ounces of gold recovered at the San Francisco mine, while the solid red line shows total gold recovery at San Andres.
The San Francisco mine generated average revenue of $33.2 million USD per quarter during the last 5 year time period, from an average of 38,420 ounces of gold placed on the heap leach with an average gold recovery of 68 percent, or 26,300 ounces per quarter.
In contrast, the San Andres mine generated average revenue of $23.5 million USD per quarter during the last 5 year time period, from an average of 23,500 ounces placed on the heap leach with an average gold recovery of 84 percent, or 19,800 ounces per quarter. But Alio Gold average cost of production was $27.5 million dollars including depletion, while San Andres average cost of production including depletion was only $19.1 million USD. Consequently, San Andres contributed $4.35 million USD to Aura Minerals bottom line, while the San Francisco mine with its slightly higher head grade and higher average gold production contributed $5.15 million to Alio Gold. The main difference between the two mines is in the strip ratio which is the ratio of waste rock to ore. At Alio the 5 year average strip ratio has been 2.76, while at San Andres, the 5 year average strip ratio is an unbelievably good 0.67.
So this chart is the basis for my equation of San Andres = ALO. However, the real equation should be San Andres >= ALO, because at Alio Gold, the strip ratio of the San Francisco mine has increased to 3.55, and is on the way to 4 in the next 5 years, while at San Andres, the strip ratio stays under 1, while ore grades improve to the same grade as Alio.
The next chart shows a comparison of the total cost per metric ton of ore at San Andres compared with the corresponding cost at San Francisco. Total costs have been cut from $16 USD per tonne of ore in 2012 to $9.37 USD per tonne in Q3 2017, while at Alio the total cost per metric tonne of ore has been flat at a little over $10 USD.
The mine plan at San Francisco is for production of 2 million tonnes of ore per quarter, while the San
Andres mine plan calls for 1.77 million tonnes of ore at grades of 0.58 g/t, so that San Andres should be producing 25000 ounces per quarter for the next 8 calendar quarters.
The difference is that San Andres will only have to mine around 1 million tonnes of waste rock, while at San Francisco 8 million tonnes of waste rock need to be moved to get at 2 million tonnes of ore.
The last figure shows San Andres mine revenue per ounce of gold from 2012 to 2017, and total cost per ounce of gold. The main takeaway here is that operating margins in Q3 2017 of a little over $400 USD per ounce are double what they were in the last quarter of 2012 when the gold price was north of $1700 USD per ounce. And if gold goes to $1600, margins at San Andres double to $800 USD per ounce of gold produced.
In 2018, I expect San Andres to throw off $50 million USD in gross margin at an average gold price of around $1500 USD, and in 2019 if gold goes to $2000 USD per ounce, San Andres generates $112 million in cash which is enough, by itself, to fund Almas, without having any help from Ernesto Pau a Pique (EPP) or Aranzazu.
I will leave the answer to your question about EPP to a following post, because I am still updating my financial model on that mine, but I think that this post
provides you with the reason why Aura Minerals does not have to sell Aranzazu to fund the development of Rio Novo's properties. Both San Andres and EPP have a 6 year mine
life so they will be in production until 2023. Aranzazu assuming it restarts in 2018 will have at least a 10 year mine life so that takes it to 2028.