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Aureus's success at New Liberty shows quality will out

“One thing we have is grade,” says CEO David Reading. “The other thing we have is strong people. It’s a testimony to them that we’ve actually built it.”

Aureus.JPG
Golden moment: First gold pour at the New Liberty project.

They say that when you match good projects with good people, quality will out.

That’s not something that David Reading objects to when it’s put to him a couple of days after the company he heads up, Aureus Mining (LON:AUE), officially opened its first mine at New Liberty in Liberia.

“One thing we have is grade,” he says. “The other thing we have is strong people. It’s a testimony to them that we’ve actually built it.”

Built it and put it into production, all within the space of a couple of years and in some of the toughest market conditions the gold mining industry has known for more than a decade.

“We’re the first new mine to be built in West Africa in two-and-a-half years,” says Reading.

What’s more, he says, Aureus is one of only a few companies that have gone all the way from grass roots exploration right into production.

“We’re a small company but we’ve demonstrated that we’ve got the translation skills to be an explorer, a developer and a producer. That doesn’t happen very often. Randgold (LON:RRS) did it; Endeavour (TSX:EDV) did it; Semafo (TSX:SMF) did it, but there aren’t many.”

After all, this is a market where the more common outcome in recent years has either been failure, or a slowing of the pace of work to a snail’s pace.

Even when restricted to West Africa, the catalogue of recent outcomes makes for grim reading.

At the beginning of the global financial crisis Etruscan was the first to go under, and was then acquired by Endeavour.

Glencar was bought by Gold Fields (JSE:GFI), which in turn sold the assets on to Hummingbird (LON:HUM).

Volta Resources, sinking under the weight of its projected capital costs, was acquired by B2Gold.

Avocet (LON:AVM) bailed out the ailing asset of Wega Mining in a deal brokered by Macquarie Bank, which was owed a large sum of money.

Endeavour then re-emerged to gobble up Adamus, although that deal was billed as a merger.

More recently Papillon was swallowed by Perseus (ASX:PRU).

And these are just some of the more prominent examples.

So, what in particular is it about Aureus that has enabled it to go all the way?

The first thing to point out is that this is a long story - as you’d expect with a project that’s gone from grass roots to production and weathered a five-year civil war along the way.

Back in 1996 New Liberty was acquired by Aureus’s direct corporate forerunner, Mano River Resources, which was active on the ground for many years before finally splitting into two companies right at the end of the mining boom in 2009.

Early exploration work was interrupted by the Liberian Civil War, which raged from 2000-2005.

It recommenced in 2006 and really gathered steam in 2009 with the delineation of a two kilometre mineralised strike length.

By 2010 the project boasted a resource of over 1.5mln ounces and was now under the stewardship of Reading, a man with much West African mining experience from time spent at Randgold.

More recently he licked European Goldfields into the sort of shape that made Eldorado (TSE:ELD) bid and pay more than C$2.5bln in cash and shares for it.

But the key to it all, as Reading says, was grade.

At 3.4 grams per tonne gold, the 924,000 ounce reserve at New Liberty looks economic even allowing for the current volatility in the gold market.

According to the definitive feasibility study, the project’s break-even all-in costs per ounce including capital repayment will ring in at US$1,050 per ounce.

We got near that price in the recent crash, but never quite there. Instead, the subsequent rebound has put the price around US$80 higher than that.

Alright, Aureus’s original modelling was done using US$1,400 gold, so it’s still a little bit up in the air, but there’s also the impact of cheaper oil to factor in, now that Brent and WTI are both wobbling at around US$50 per barrel.

We won’t know the true figures for a couple of months yet.

“We’ll announce commercial production in October,” says Reading. “That’s the point at which we’ll start outlining the numbers in detail.”

And that’s the point at which we’ll know once and for all just how much of a standout project New Liberty really is.

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