New Producer Aura Forges Ahead In Mexico, Brazil

VANCOUVER–It has been a busy six months for Aura Minerals (ORA-T, ORAUF-O). Since inking a deal to buy three producing gold mines from Yamana Gold (YRI-T, AUY-N) in June, the company has received the final development permit and released a preliminary economic assessment for its Arapiraca project in Brazil, produced its first gold at San Andres, completed a share rollback, and boosted the gold resource at its Aranzazu deposit in Mexico.

Aura’s Aranzazu project is home to a past-producing mine. In fact, mining activities in the area started in 1548 and continued sporadically until 1999, when significant production ceased because of low metal prices. The Mexican owners restarted limited production in late 2007; Aura bought the operation in mid-2008 and, in the face of the global recession, put it on care and maintenance before the end of the year.

Earlier operators produced gold and silver at Aranzazu, but Aura’s new estimate marks the first time precious metals have been included in a resource for the project. Using a 0.5% copper cutoff grade, the new count pegs measured and indicated resources at 24.1 million tonnes grading 1.01% copper, 0.4 gram gold per tonne and 9.09 grams silver. Inferred resources add 8.7 million tonnes averaging 0.82% copper, 0.18 gram gold and 4.39 grams silver. The estimate covers two deposits, known as Arroyos Azules and BW.

The gold and silver grades may not fully represent the deposit’s precious metal potential because, of the drill holes used to calculate the resource, only 51% were assayed for gold and only 63% were assayed for silver. Where no gold or silver assays existed, a zero value was applied.

The report also estimated Aranzazu’s resource using a 0.8% copper cutoff grade and Aura will now use the higher-grade resource estimate as a basis for reserve definition and detailed mine planning. That higher-grade resource totals 12.8 million measured and indicated tonnes grading 1.34% copper, 0.5 gram gold, and 11.87 grams silver, plus 3.2 million inferred tonnes averaging 1.17% copper, 0.28 gram gold and 6.44 grams silver.

Aranzazu hosts a 1,800-tonne-per-day mill that can produce a copper-gold-silver concentrate via flotation. The property is 250 km northeast, by paved highway, of the city of Zacatecas. Aura plans to restart operations in the second quarter of 2010 and is using the current downtime to upgrade the mill.

The company is spending US$20 million to increase the mill’s production rate to 3,000 tonnes per day. Aside from adding to the mill’s capacity, the expenditure will also finance new ramp and stope development, new mine infrastructure including additional ventilation, and some added mine equipment for the underground operation. Aura is also conducting additional metallurgical test work to optimize recoveries. An underground drill rig to be used for stope definition will also be onsite before the end of the year.

In announcing the resource, Aura president and CEO Patrick Downey emphasized the potential to expand Aranzazu’s resources further and said the company is contemplating its options.

“With the wide mineralization, excellent ground conditions, and the fact that the Aranzazu project has a large and expanding resource base open on strike at both ends and at depth, the company plans to complete a review for additional mine and plant expansion,” Downey said. “The expansion would be based on a low-cost bulk mining scenario such as sublevel caving.” He added that, if the resource is deemed suitable for sublevel caving, Aura will start development planning in 2010.

Aura’s other development-stage project is in Alagoas state, Brazil. The Arapiraca copper-gold-iron ore project is home to two deposits: the advanced-stage Serrote da Laje deposit and the early-stage Caboclo deposit. Serrote, the much larger deposit, hosts 195.9 million measured and indicated tonnes grading 0.49% copper, 15.48% iron and 0.09 gram gold, plus 31.2 million inferred tonnes of 0.49% copper, 14.01% iron and 0.09 gram gold.

A recent preliminary economic assessment concluded that Serrote could support an open-pit mine and concentrator churning through 41,000 tonnes of ore daily to produce a copper-gold concentrate and an iron-rich magnetite concentrate. Each year the operation would produce 137 million lbs. copper and 1.3 million tonnes of magnetite concentrate grading 67% iron. Current resources support a 12-year mine life.

To produce a pound of copper at Serrote is expected to cost US82¢, net of byproduct credits for gold and iron. The project carries an after-tax net present value (NPV) of US$325 million, using a 10% discount rate, and a 25.4% after-tax internal rate of return. The financial analysis used metal prices of US$2 per lb. copper, US$800 per oz. gold, and US85¢ per tonne iron fines.

To build the mine in question will cost Aura US$490 million. Payback would be achieved in less than three years.

The Serrote oxide resource was treated as waste in the analysis but a quick assessment of its potential returned interesting numbers. For another US$52 million in capital costs Aura could develop an oxide facility capable of processing 8,000 tonnes of ore daily. The oxide operation carries a pre-tax NPV of US$34 million, using a 10% discount. Aura plans to study this option further.

The project is road-accessible and a rail connection to three Atlantic ports passes within 20 km. Brazilian authorities recently announced plans to build a new 230 kilovolt powerline into the town of Arapiraca, which is 15 km southeast of the project, and the line will have sufficient capacity for the new mine. In addition, a new water supply pipeline for the region is in the planning stages.

In September, Aura was granted the installation licence for the Arapiraca project, which allows the company to start construction. Earlier in the year the Brazilian Federal Water Agency granted a licence to take water from the Sao Francisco River and the Alagoas State Water Agency granted the needed tailings dam and waste rock disposal licences.

And Aura plans to continue exploring Caboclo, a target that covers a much larger area than does the Serrote deposit. An initial estimate earlier this year pegged Caboclo’s resources at 7.6 million measured and indicated tonnes grading 0.57% copper, 19.34% iron and 0.16 gram gold, plus 4.6 million inferred tonnes grading 0.57% copper, 14.24% iron and 0.11 gram gold.

While its work at Arapiraca and Aranzazu continue apace, Aura is also working through the final stages of its three-mine acquisition. It has taken ownership of one, marking its transition into a gold producer, and is preparing to take over the other two operations within six months. Together, the three mines produced 220,000 oz. gold in 2008 at an average cash cost of US$550 per oz.

The deal took place in mid-June. In order to focus on its six core operating mines and its stronger development projects, Yamana decided to sell its three most costly gold mines: the San Andres mine in Honduras and the Sao Francisco and Sao Vincente mines in Brazil. The major found a buyer in Aura, which agreed to pay US$200 million for the three producing assets. The payment comprised US$90 million in cash, US$70 million in deferred cash payments, and US$40 million in Aura shares at 40¢ apiece.

The transaction was designed to close in two parts, with the sale of San Andres taking place in short order but the sale of the Brazilian mines taking longer, due to jurisdiction- related regulatory requirements. The second part of the deal is expected to close in early 2010.

Aura took control of San Andres in late August. In the remaining month before the end of the third quarter, Aura produced 6,925 oz. gold at the Honduran operation.

Aside from producing gold, Aura is focusing on operational improvements at San Andres, which are expected to have a positive effect on production levels and cash costs before the end of the year. Upgrades in progress include the full
integration of a new mining contractor, continued construction of a new primary crusher and conveyor system to significantly reduce haulage distances and increase throughput, metallurgical test work to optimize the gold leach cycle, and implementation of a new stacking and leaching plan to optimize recovery.

On news of the Aranzazu resource update, Aura’s share price gained 5¢ to close at $3.26. The company has a 52-week trading range of 32.5¢-$3.65 and 173 million shares outstanding.