Aurizon dips on financials, seeks growth

Last year was a good year for Aurizon Mines (ARZ-T, AZK-N), says George Paspalas, the president and chief executive of  the company, which has been mining the Casa Berardi gold project in Quebec since 2006.

The company reported record revenues, cash flow and profits for the year. But on the fourth quarter news its share price dipped to a new 52-low of $4.35, before closing March 15 at $4.43.

Fourth-quarter results were “mildly disappointing, despite record revenue,” National Bank analyst Paolo Lostritto says. 

Aurizon reported cash flow per share of 18¢ versus the consensus of 22¢, but its 13¢ earnings per share met street expectations. The junior raked in higher-than-expected revenues of $85.7 million for the period. 

“Revenue benefited from additional sales from inventory, but was more than offset by higher-than-expected operating costs [total cash costs were US$498 per oz., versus the US$453-per-oz. forecast],” says Lostritto, adding these cost levels are reflective in the 2012 cost guidance of US$600 per oz. 

For the full year, production from the company’s sole producing asset, Casa Berardi, came under 164,000 oz. gold at total cash costs of US$537 per oz. It generated $260 million in revenue, $43.9 million in profits and $121.3 million in operating cash flow.

“We had a great year in 2011. We are established in a very good mining jurisdiction. The Casa Berardi [operation] is consistently delivering good results,” Paspalas said to investors and analysts on a conference call.

For 2012, the mine is expected to produce 155,000 oz. to 160,000 oz. gold. Cash costs are expected slightly higher at US$600 per oz., owing to mining smaller stopes and the rising costs in stope preparation, Paspalas says. Gold grade is also expected to be 6% lower averaging 7.5 grams for the year, compared to last year’s 8-gram gold grade.

Aurizon ended 2011 with $213 million in cash, which the debt-free junior hopes to channel towards 2012’s exploration and development opportunities.

It has a $9.4-million exploration program for the year at Casa Berardi alone, consisting of 88,000 metres to test multiple targets. On average three rigs will test the extensions and depth of several zones, and seven rigs will focus underground on definition drilling.

The company is also developing infrastructure underground to improve the mine’s design capacity, and has begun deepening the mine shaft.

Casa Berardi is expected to run until 2020.

At Joanna, its development-stage gold property, a feasibility study should be completed by June on the Hosco deposit. The study will include last June’s updated reserves of 2.24 million oz. gold from 54.1 million tonnes grading 1.29 grams gold.

However, Paspalas says the study’s projected capital and operating costs should be significantly higher than estimated in the December 2009 prefeasibility because the project’s resource model is 31% larger. Adding to the costs, the company has opted for an autoclave recovery process and handling the ore on site to lower project risks.

Lostritto says that because of Joanna’s scope change and industry-wide inflation pressures, he models initial capital expenditure of $425 million and an average total cash cost of US$765 per oz. over the mine’s life. 

The previous study had estimated capital costs at $187 million and cash costs of US$455 per oz. 

The Quebec-focused junior has started a $3.6-million exploration project near the project’s Heva deposit, which contains a measured and indicated resource of 270,000 oz. from 4.4 million tonnes grading 1.9 grams gold per tonne.

Joanna is located along the Cadillac Break, 20 km east of Rouyn-Noranda.

Before the feasibility study is out, the company anticipates releasing resource updates in April for Marban and Fayolle, its two most advanced gold exploration projects.

Fayolle sits 10 km north of Joanna in the Destor-Porcupine fault. About 7,000 metres of drilling is planned for the year at Fayolle to test downdip and lateral extensions.

At Marban, Aurizon is working on a second phase of drilling consisting of 34,000 metres. Marban hosts three past-producing mines and is located in the Malartic gold camp in Quebec’s Abitibi region.

The company can earn a 65% interest in both properties.

Paspalas says the company is seeking to complement its organic growth profile by acquiring an operating gold asset, or one that is near production. Not saying when that transaction could happen, Paspalas notes the company is open to acquiring a project in Canada or elsewhere to help it become an intermediate gold producer with more than one source of gold ounces and cash flow.

Lostritto notes that near-term growth for the company is uncertain, but believes it will likely add growth through acquisition. He maintains a “sector perform” rating on the stock and a $5.85 price target.