By Alastair Ford
“Indaba was good for us”, says Aureus Mining’s David Reading. It was a smaller Indaba this year to be sure, but that wouldn’t have put Aureus off. It’s one of the few companies around these days that’s actually putting something into production and the rarity of that in itself meant that it garnered plenty of attention.
But there was also a bit of business to be done, too. Under David’s capable stewardship Aureus has now arrived to a position where first gold is likely to be poured within three months.
But, as might be appreciated as the bear market rages all around us and the gold price consolidates at around US$1,200, roughly US$600 below its boom-time high, it hasn’t been a particularly easy journey getting to this point.
David got the equity portion of the funding for Aureus’s New Liberty project away right at the end of the last funding window and at a price at the time which he bemoaned as being too low, but which in retrospect now looks rather good.
The US$80 million raise was done at the back end of 2012 and was followed a year later by a comprehensive debt package supported by, amongst others, Nedbank.
But it was all done with reference to the assumptions contained in the feasibility study for New Liberty that was first released to market back in October 2012. Fast forward to early 2015 and two things have changed. The first is that the gold price is now significantly lower than the US$1,400 initially used.
And the second is that Aureus teams are now on the ground in Liberia themselves, working the project over and assessing what they think is, and isn’t, possible. Accordingly, before the button finally gets pushed on production, there is now a short window in which a reconfiguration can occur.
Not a cheap undertaking, but one which the company could probably have taken on board using existing funds, had not the Ebola crisis derailed scheduling plans and sucked unbudgeted money out of the contingency fund.
“The funding was really specifically for a new mine plan”, says David. “It’s better than the old one. The new mine at US$1,300 is better than the old mine plan at US$1,400. The new mine plan is accretive. We’ve got more information now, we’ve done a bit of grade control drilling. We want to get at some of those really juicy grades early. We’ll get more cash in during the debt repayment period. There are two starter pits instead of one, which gives us more flexibility. There’s a bigger stockpile. All of which allows for the generation of more free cash which allows more money for exploration.”
It’s not every company that can bring US$15 million of new money to the table just like that. But then, not every company is a whisker away from production. That’s the catch-22 facing companies that are further away from production – because the uncertainties are greater, funding is less likely, rendering the uncertainties still greater.
But in Aureus’s case it didn’t actually need its new money to see it through into production. That’s not the point. This is all about fine tuning than about whether or not the company was able to deliver on the fundamental proposition itself. David is very keen to stress that.
Having said that though, it’s worth pointing out for the record that the company didn’t exactly escape from the Ebola outbreak scot free. Thanks in large part to Aureus’s careful handling of the issue, there were no actual cases of Ebola either on New Liberty or among its staff. But ensuring that outcome came at a cost.
“We lost US$6 million directly to Ebola”, says David. “Plus US$10 million due to the delays and US$2 million in corporate costs.” But Ebola is virtually over now, there are few new cases being reported, and David is upbeat that Liberia may very well be able to declare itself Ebola-free by the second half of the year.
That would be a timely outcome for Aureus, coinciding as it would with the ramp up of production, as well as the usual ceremonial associated with a mine opening.
After that, the company will look to its second project, Ndablama, and possibly also to an underground option at New Liberty. “We’ve tried to become the go-to stock for investors”, says David. “We’ve demonstrated that we’ve got a go-to project.”
And the thinking has to be: if Aureus can get this done in a market as bad as the one we’re witnessing now, what might it not achieve when and if the market turns for the better? After all, cash flow is imminent and at this point in the cycle cash is very definitely king.