Aurelian Gold Discovery Takes Centre Stage

Viewed as a prime takeover target, Aurelian Resources (ARU-V, AUREF-O) is capitalizing on a share price that is approaching $40 and the strength of a new, potentially “world-class” discovery in Ecuador to raise $75 million in a bought-deal financing.

A syndicate of underwriters, led by Sprott Securities and including BMO Nesbitt Burns, Canaccord Adams, Dundee Securities, Westwind Partners, Blackmont Capital and Primary Capital, have agreed to purchase 2 million common shares of Aurelian at a price of $37.50 apiece. The bought-deal offering is expected to close on or around Nov. 22, 2006, and will be subject to a 4-month hold period.

Aurelian intends to use the proceeds for continued exploration and development in Ecuador and for general working capital purposes.

It was in April that Aurelian first announced the discovery of the Fruta Del Norte (FDN) zone at the Condor project, with the release of the results for the first four holes on the buried target, which included a 237-metre-long intercept averaging 4.14 grams (or 2.89 grams cut) gold per tonne and 8.5 grams silver in hole 51, starting 192 metres down-hole on section 3300N.

On the back of these first few holes, the junior raised $20 million in a bought-deal financing priced at $2.75 per share and underwritten by Dundee Securities, Canaccord Adams and PowerOne Capital Markets.

By June, Aurelian had leaped to over $18 per share in heavy trading after announcing results from hole 57, which intersected a stunning 189 metres averaging 24 grams gold (9.47 grams cut) and 21.4 grams silver starting 196 metres down-hole on section 3400N.

“This is one of the best drill hole results we have ever seen,” remarked Blackmont Capital’s Don Poirier after visiting the project in early July. “We are excited about this new discovery, believing that it represents one of the best in the past decade.”

At least 17 occurrences of visible gold were noted over the 189-metre interval, which was highlighted by high-grade sections of 10.5 metres of 38.6 grams gold and 20.2 grams silver, 14.8 metres of 97 grams gold and 57 grams silver, and 11.5 metres of 149 grams gold and 117 grams silver (including a 0.35-metre sample assaying greater than 1,000 grams gold and 1,130 grams silver).

The visible gold occurs as fine disseminations in quartz veins and breccia, as fine seams and as coarser grains (up to 5 mm). Gold has also been observed within pyrite clusters. There appears to be three discrete gold mineralizing events, with coarse, visible gold playing an intrinsic part of the system.

Described by Aurelian as an “intermediate-sulphidation” epithermal gold-silver system, the FDN discovery is buried under 165 to 260 metres of predominantly post-mineralized infill conglomerate. The gold mineralization is largely hosted by an andesitic volcanic sequence assigned to the Misahaulli Formation of Jurassic age. The conglomerate cover is part of the Suarez Formation, which is mapped as a 10-km-long and 2-km-wide package and is interpreted to have been deposited in an extensional pull-apart basin.

The mineralized system is characterized by a combination of multi-phase quartz-carbonate-sulphide stockwork veining and hydrothermal brecciation in intensely silicified andesitic volcanic rocks that underlie the basin.

“Our discovery of the Fruta Del Norte epithermal gold-silver system was the direct result of follow-up from our nearly two-year-long regional sampling program,” said Aurelian president and CEO Patrick Anderson in a letter to shareholders earlier this year.

Through that program, which ended in November 2005, 33 gold targets and 28 copper targets were identified for exploration in 2006. Anderson said the number of targets demonstrated “the pervasive nature of gold mineralization” throughout the company’s 950-sq.-km concession package.

Condor

The Condor project is part of the La Zarza concession, which occupies the southeastern corner of Ecuador along the Peruvian border. The southern edge of the concession is 80 km east-southeast of Loja, a 5- to 6-hour drive along paved highway for about a third of the distance, then on primary and secondary gravel roads for the remainder. Foot trails and rivers provide access to the heart of the concessions.

The local terrain is rugged and generally covered in tropical rain forest and heavily incised by fast-flowing streams and rivers. Typically, over half a metre of composting vegetation overlies up to tens of metres of saprolite, produced by the tropical weathering of bedrock.

“Exploration in challenging jungle terrain requires innovation and outside-the-box thinking for success,” Anderson told shareholders. “Aurelian has taken sampling techniques successfully used in places like Borneo and Sumatra and applied them in the Cordillera del Condor.”

Aurelian purchased La Zarza from private interests in 2002 and the concession became the core around which the Condor project took shape. Today, the company holds over 950 sq. km in 38 concessions that stretch 90 km through the Zamora-Chinchipe and Monora-Santiago provinces of southeastern Ecuador, a region known as Cordillera del Condor.

Cordillera del Condor is considered prospective for both gold-silver vein mineralization and porphyry copper. Aurelian’s concessions cover the projected extension of the southern end of the Pangui porphyry copper belt. The junior’s package of properties adjoin and partially surround Corriente Resources’ (CTQ-T, ETQ-X) Mirador copper project, just 17 km north of Aurelian’s new discovery.

Richard Sillitoe, an independent consultant and one of the world’s leading experts on epithermal gold systems, visited the project in July. He concluded that there is potential to find more mineralization at the discovery, and that additional blind epithermal gold targets could also be found elsewhere on the Aurelian concessions by targeting similar prominent arsenic and antimony anomalies.

Most of Aurelian’s land position is relatively unexplored by modern methods, owing to historical access restrictions related to a now-resolved border dispute with Peru. From 1985 thru 1999, it was only possible to conduct exploration work by receiving permission from the Armed Forces due to the proximity of military camps.

Bonza-Las Penas

The FDN discovery was made about 1 km north along strike of the Bonza-Las Penas prospect, where Aurelian outlined a 500,000-oz. gold resource grading about 1 gram per tonne in 2004. Bonza-Las Penas was originally worked by Australia-based Climax Mining in the late 1990s. While conducting reconnaissance sampling that concentrated on drainages near the sites of artisanal colluvium and bedrock mining, Climax turned up the Ubewdy, Bonza and Las Penas prospects. The Aussies would eventually complete 17 holes in three separate drill campaigns while exploring the Bonza and Las Penas artisanal mining sites, which were found 300 metres apart on opposite sides of the Machinaza River. The best intercept was 115 metres of 1.6 grams gold, including 42 metres grading 2.6 grams from drilling at Bonza.

In 2004, Aurelian further tested Bonza-Las Penas with 28 holes totalling 6,900 metres to confirm and expand upon the previous drilling. Mineral Industry consultants Micon International used the results of 45 cored holes totalling 9,760 metres and 15 trenches comprising 580 metres of surface sampling to estimate an inferred resource at Bonza-Las Penas of 15 million tonnes grading 1.07 grams gold and 11.6 grams silver, the equivalent of 517,100 oz. gold and 5.6 million oz. silver.

Bonza-Las Penas is a structurally controlled, low-to-intermediate sulphidation epithermal system containing anomalous-to-significant concentrations of arsenic, antimony, manganese, zinc, mercury, lead and copper. The shear-hosted mineralization is associated with the Las Penas fault zone, a regional-scale, north-south-striking structural corridor that is visible for over 30 km on satellite imagery maps.

Locally, the Las Penas fault
strikes close to and parallel to (but dips more steeply than) the contact between andesitic volcanics and the conglomerate unit. The fault zones cut both lithologies near the surface, but precious metal mineralization is much better developed in the fractured and brecciated volcanics.

One of the northernmost holes on Bonza-Las Penas intersected 29 metres of 2.29 grams gold, followed by 9.6 metres of 2.32 grams starting 163 metres down-hole in hole 4-26. Recent mapping by Aurelian identified a large normal fault that cuts across the Bonza-Las Penas structure and drops the FDN target area roughly 250 metres relative to the Bonza-Las Penas epithermal system. Bonza-La Penas gold is now interpreted as a leakage anomaly from the more strongly mineralized zone at FDN.

The FDN system strikes north-south and is confined to a 200-metre-wide, fault-bounded corridor. At the north end, the system is interpreted to be vertically dipping, so true widths are estimated at between 45% and 60% of the reported down-hole intervals. The southern end of the system dips moderately to steeply westward. The mineralization is closed off to the east and at depth, but there is evidence that the system was truncated and offset by a post-mineralized fault along the corridor’s western edge. Recent drilling is testing this premise.

Newly released results for holes 70, 71 and 73 confirm FDN is cut off at the north end along strike of hole 69 by a steeply dipping, north-northeast-striking post-mineralized fault. Aurelian notes that another prospect is defined along the projected trend of this fault 750 metres north-northeast of FDN by anomalous geochemical sampling results and favourable geology. Plans are being made to follow up on this target, which is called Papaya.

Hole 70 is the most northerly hole drilled at FDN to date. Aimed across the north end of the zone at an angle of minus 61 on section 3900N, hole 70 yielded a much narrower brecciated section of vein material grading 1.69 grams gold and 4.4 grams silver per tonne across 8.1 metres after passing through two interpreted fault systems. The mineralized section is under 205 metres of infill conglomerate and 60 metres of unmineralized, propylitically altered andesite.

Hole 70 was collared 100 metres north of hole 69, which intersected 127.4 metres of 1.65 grams gold and 5.1 grams silver, under 165 metres of drilled conglomerate. This was immediately followed by a 75.6-metre section of 2.96 grams gold and 6.7 grams silver starting from 302 metres down-hole and a 21.7-metre section of 2.72 grams gold and 11.3 grams silver starting at 386 metres. Hole 69 bottomed out at 472 metres drilled depth, with the last 50.6 metres averaging 3.61 grams gold and 9.3 grams silver.

Hole 71 stepped out to the west on section 3800N and tested the system downdip of hole 69 to intersect 242 metres of conglomerate and a 150-metre broad zone of propylitic andesite before drilling through a partially mineralized fault zone (10 metres of 2.71 grams gold and 7.1 grams silver) and into epithermal veining at a down-hole depth of 416 metres. Mineralized sections included 19 metres of 2.06 grams gold and 4 grams silver, plus 36 metres of 3.65 grams gold and 4.9 grams silver.

Hole 73 stepped out farther to the west to test for offset mineralization along the west fault but did not intercept any significant veining or mineralization.

To date, 32 diamond drill holes have tested the FDN discovery over a strike length of 1,000 metres, with results available for the first 26 holes in an 800-metre-long portion. Based on the latest drill results, Poirier is using a 10.5-million-oz. geologic potential to rate Aurelian a “speculative buy” with a revised target price of $48.35.

“The FDN deposit is a remarkable discovery made by a talented group of exploration people, supported by a management team that had the foresight and fortitude to stake a large land position in an underdeveloped region,” Poirier wrote. “We believe Aurelian’s exploration story is young and we are optimistic that drilling in a number of new areas, including the obvious southward extension of the FDN deposit, will produce positive results.”

Poirier also wrote that Blackmont Capital believes an offer for the company will be made at a substantial premium to the company’s net asset value.

Aurelian recently expanded its board of directors with the appointments of Andr Gaumond and Jonathan Rubenstein, who bring strong geological and legal skill sets. Both have recently been through takeover processes.

Expanding FDN

One drill rig is continuing to define FDN where it remains open to the south. Aurelian has completed six new holes on the southern end (results pending); four of these holes (78, 80, 81 and 83) are south of the confirmed limits, as defined by previously reported holes 53 and 54, which were drilled on section 3100N. Aurelian suggests the mineralization continues “strongly” southward beneath a flat-lying sequence of barren sandstone for at least 100 metres based on visual observations made while logging the core.

Angled at minus 61, hole 53 intersected 52.2 metres averaging 1.04 grams gold and 3.6 grams silver, beginning 335 metres down-hole. Hole 53 was undercut by hole 54, which intercepted 27 metres of 2.41 grams gold starting at 356 metres drilled depth, followed by 86 metres grading 3.2 grams gold and 2.9 grams silver from 408 metres onward.

Aurelian drilled between these two holes with hole 74, which intercepted 172 metres of 3.84 grams gold and 4.7 grams silver (including an 88-metre section grading 6.23 grams gold and 3.2 grams silver) under 300 metres of unmineralized conglomerate.

Three of the new holes (78, 80 and 81) were collared 100 metres beyond holes 53 and 54 on section 3000N.

“This gives an estimated strike length of at least 800 metres to the FDN mineralized structure,” Aurelian says.

A fourth hole, no. 83, was collared another 100 metres farther south on section 2900N. The company confirms this hole intersected a 50-metre-wide zone of epithermal stockwork and brecciation, followed by a number of widely spaced, narrow quartz-carbonate veins, with “significant visible gold.” The veins are surrounded by narrow zones of stockwork veining and brecciation. Assays are pending.

“At the southern end of FDN, the strength of the mineralized system, as described in hole 83, is clearly intact and the implication remains that the FDN zone is likely to continue to the south,” wrote Graeme Currie of Canaccord Adams in a recent update. “To date, there is continued evidence to suggest the strike length will extend well past the 900 metres already defined.”

Aurelian is using a second drill rig to test regional targets. Four holes have been completed in the Las Arenas prospect, 3 km south of FDN. The prospect is defined by an arsenic and antimony geochemical anomaly in a similar geological setting to FDN.

Drilling is expected to continue through to the Christmas break, with the expectation that a number of new rigs will arrive on-site. A larger rig is needed so that holes can be pushed deeper in order to chase the southern extension of FDN.

“FDN, over the past six months, has developed into what we believe is the largest gold discovery by a Canadian-based junior in the past decade,” Currie wrote.

He has maintained a speculative buy recommendation since April and believes there is potential for an 11-million-oz. in situ resource, assuming an average grade of 8 grams.

“We emphasize this is our very rough estimate and is based on the assumption that the average grade and thickness is maintained in the holes not yet reported,” acknowledged Currie, who has revised his target price for Aurelian to $50.50.

Aurelian sits with 32 million shares outstanding on a fully diluted basis.