Aureus Mining – Not Out but Certainly down

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Shares in AIM and Canada listed Aureus Mining (LSE:AUE) trade higher today at 40p post the company’s 2012 results release and an update on financing for the company’s New Liberty gold project in Liberia. However, the shares are still well below the 57.25p at which I called them a post t1ps sell in November.

I wrote about the company three times in November as it was flushed out on a cash call and my detailed analysis has proven pretty much bang on the money as you can read

HERE  ( first sell)

HERE (cash call flushed out)

HERE ( Quarterly results comment

Aureus yesterday announced that it “has mandated the leading South African banks Nedbank Ltd and Rand Merchant Bank to arrange a project debt finance facility of up to $100 million, together with an associated $8 million cost overrun facility, to support the development of the company’s New Liberty gold project”. It added that “the total cost of the funding is expected to be approximately 5% per annum based on current US$ LIBOR” and that the due diligence process is underway and “expected to be completed by the end of May”. This is thus not yet a done deal but does look to be a material step towards it, particularly given the horrid state of credit markets.

The 2012 results show a net cash outflow before new financing in 2012 of $27.81 million, with the company ending the year with cash of $79.41 million and $5 million of liabilities. It is thus now potentially well positioned to fund an initial capital cost estimate for New Liberty of $140 million.

The feasibility study last year showed a post-tax Net Present Value at an 8% discount rate and $1,400 gold, though “on a pre-government free and carried interest basis” (the Government of Liberia has a 3% net smelter royalty and holds a 10% free and carried interest in the project), of $148 million. Though optimisation studies are reportedly “almost complete” and there is also gold price upside potential, I don’t like the way the company has as a results statement highlight “feasibility study shows a robust NPV of US$ 234 million and IRR of 37% at an average gold price of US$1,400/oz” – these are pre-tax figures and the NPV is from utilising just a 5% discount rate. That is an aggressive presentation of the facts in my book.

The market cap here is presently £88.6 million ($134 million). The company does also have prospective exploration potential within its sizeable licence area but pre the financing confirmation and optimisation results, I remain cautious here and, even on all going to plan, note the first gold pour is not scheduled until towards the end of 2014. Considering also the operational and political risks of New Liberty being scheduled to be Liberia’s first commercial gold mine, the shares may, at their levels of now, no longer be a clear sell but before seeing the (end of May expected) completion of the financing due diligence and New Liberty optimisation work, I rate them no better than a ‘hold’.

If you are looking for a development project that is already fully financed, will produce well before the end of 2014 and where the maths really are compelling have a look at this idea which is my top pre-production mining pick right now

Tom Winnifrith writes for 10 US and UK financial websites. You can alerts on all his material by following him on twitter @tomwinnifrith – you can also get links to all that material via his own blog www.TomWinnifrith.com

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