Company Profile
Aurizon Mines is a new junior gold producer with the underground Casa Berardi mine in NW Quebec. At year-end 2006, 1.2 million oz were in the mine plan with extensions to the mine life anticipated. Exploration is also underway in and around the mine with junior partner Lakeshore Gold (LSG-T), plus at Aurizon’s two million ounce Joanna project, also in Quebec.
Click here to view previous coverage of Aurizon Mines (ARZ: TSX-V) from April 5, 2008
Event
In a note entitled “Joanna East Block Drilling ConfirmingGrade and Continuity; Scoping Study Stage” Gignac explains the reasons behind her Buy rating and target price of $6.00/sh.
Takeaways From The Event
Responding to the drill results from the East Block of its Joanna project, located 20 kilometres from Rouyn-Noranda, in north-western, Quebec, Gignac writes “Results from 24 additional drill holes confirm resource grade. Intersections include very high grade gold over narrow widths (JA-93 with 63.8 g/t over 1.4 metre, JA-139 with 60.5 g/t over 1.2 m), but mainly appear to be lower grade over wide widths. Eight infill holes with intersections from 88.5 metre – 193.5 metre depth returned an average of 1.46 g/t gold over 26.9 metres. These results are consistent with a potential open pit mining scenario.
In total, 186 holes or 70,980 metres have been drilled by Aurizon at the Joanna Project. To-date, results from 72% or 134 holes have been reported, including 24 yesterday. Results from an additional 52 infill holes are pending. In addition, five drill holes were completed in the East Block area below 500 metres to test the down-dip extension potential of the mineralization, with results to come. Above 200 metres depth, the known resource is being evaluated for future mining. The property is well-located, not well drilled and offers “considerable potential to increase the mineral resources on the property and potential to define mineral reserves by open pit”, according to the October 2007 independent technical report. Results from the current drilling will not be included in the upcoming preliminary economic assessment.
Joanna Project covers a strike length of 5 km and has known resources across almost 2 km. The East Block hosts 420,000 oz (1.6 g/t) in indicated resource and 1,150,000 oz (1.5 g/t) in the inferred category. The West Block hosts 210,000 oz (2.06 g/t) in indicated resource and 263,000 oz (1.93 g/t) in the inferred category. Earlier this month Aurizon signed an option agreement to earn up to a 50% interest in Radisson Mining’s (RDS-V) O’Brien/Kewagama property located 26 km east of Joanna.
Providing some context to the company and it’s prospects, Gignac writes, Aurizon is “developing underground targets at the new 165,000 oz/year Casa Beradi mine plus potential feed from the junior explorer’s activities on the surrounding property should ensure a long mine life. An active surface drilling program is also in progress at the Joanna deposit, in the Rouyn-Noranda mining camp, where two million ounces have been outlined to-date.”
Valuation and Target Price
With regards to valuation, Gignac writes “Aurizon is currently a one-mine gold producer. Based on a 3% discount rate, the Casa Beradi mine model, at a steady production rate returns a net present value of $362 million or $2.47 per share. Resources beyond our ten-year model are valued at $125/oz or $1.12 per share. A similar multiple is applied to the 2.0 million ounces in gold mineralization identified at the Joanna project, valued at $1.74/share. Adjusting for net working capital, the net asset value is $5.24 per share – approximately 68% of the value from Casa Beradi and 33% from Joanna. Applying market multiples of 1.1x-1.25x, similar to peers, results in a target trading range of $5.75-$6.55 per share.”
Investment Risks
Without limitations, some of the risks include reserves and resource risk, development risks, permitting risks, off-take agreements, commodity price risks, geo-political risks, exchange rates, weather related impacts etc.
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