Aurizon Mines

Source: Exec Digital Canada

Date :4/11/2008 4:43:10 AM

VP Michel Gilbert explains how Aurizon Mines struck gold in the mid-tier by sticking to long-established business principles

Written by Emmet Cole and Produced by Jason Wright

Quebec-based Aurizon Mines isn’t the only gold company to follow goals they’ve articulated - in their case, to become an intermediate gold producer by exploring and developing large land assets in a politically stable, pro-mining jurisdiction like Canada. But Aurizon was the only one to attempt such a move at a time when low gold prices made success nearly impossible. “We have a lot credit from the market and our peers, because we made believers,” VP Michel Gilbert says. “We really believed that a new mid-tier producer could be a new emerging big producer, and it appears we are now there.”

With extraordinary patience and shrewd investing ability, Aurizon has redefined the model for mid-sized, successful, gold mining companies in Canada.

Mining persistence

Aurizon acquired its first mine in one of the world’s leading gold-producing areas in 1998 - the Casa Berardi mine in Northwestern Quebec, 95 kilometers north of the town of La Sarre - nearly a decade before it went into actual production. At the time, low gold prices had reduced the industry to a crawl, as prices bottomed out at $250 to $300 an ounce. The Casa Berardi mine had been in production before, and Aurizon discovered another one million ounce zone of gold after the acquisition. But with the low prices making turning a healthy profit a near impossibility, Aurizon decided to move extremely slowly and cautiously toward production, waiting until the market ripened again.

The difficult market conditions of the 1990s were an unusual place for a small mining operation to take on any sort of large project. So, in order to assuage fears from banks and investors, the company had to take what it calls a methodical approach to reduce technical and financial risks.

“The only way to make people believe was to say ‘Don’t look at what we’re going to do. Look at what we’ve done,” Gilbert says. “Everything was done step by step, and everything has been pretty much built on the schedule we forecasted.”

In practice, this meant lowering construction risks caused by elements like the mine’s “collar” (the mouth or upper end of a mine shaft), which carries a high technical risk. Aurizon built the collar first, on schedule, and used that success to ease banking concerns. “Based on that people started to believe that this might be possible,” Gilbert says. “So through our step by step approach, we decided to lower risks, see what we were going to see, and at the end confirm that what we were seeing was delivered on forecast.”

The slow gold market proved beneficial to smaller, cautious companies like Aurizon in one unexpected way: when prices bottomed out, larger, heavily invested gold companies were forced to let a large amount of talent and expertise go, in order to soften the market blow. With little debt and an abundance of patience, Aurizon stayed flexible.

“We were fortunate to get some key employees at that time, because we knew we’d have to improve our community,” Gilbert says. “We got to choose from different mining companies who made people available.”

Unique in the industry

Gilbert says most industry experts predicted that Aurizon wouldn’t get to see the fruits of its own labour. “At that point, being a new, small producer in Canada was quite unique,” Gilbert says. “Usually, a junior mining company will make the discovery, but won’t be the developer. In all this process over ten years, most people believed there would come a point where Aurizon would be acquired by a larger company because it was big project, and moving from an exploration group toward production successfully was a big challenge.”

And so, the Casa mine started operating again in late 2006 -- nearly ten years after it was first acquired - and the company announced the beginning of commercial production just five months later. In 2007, the mine met its predictions by producing 165,000 ounces of gold, and Aurizon predicts more this year. With gold around the $1,000 an ounce mark, Aurizon is flush with cash. In 2007, Aurizon earned “Company of the Year” from the Association de L’Exploration Miniere du Quebec.

Other small gold companies have taken notice, and with high gold prices paving the road, are following Aurizon’s mid-tier approach. “Right now, while gold prices are progressing, it’s easier to create emerging smaller companies,” Gilbert says. “But we built Aurizon when gold prices were low and entered production when gold prices increased.”

More work ahead

Aurizon is currently focused on securing its growth with two more projects in the same 300 square mile-Abitibi region of north western Quebec. First, the company hopes to tap further existing reserves at the Casa Berardi mine. “We have a project for one million ounces of gold in reserve, and we have an additional 1.5 million in resources,” Gilbert says. “So the challenge will be to transfer those resources into their reserve.”

Next is the Joana project south of Casa Berardi, where the company plans to invest around $3 million to enable nearly 26,000 meters of drilling. The site contains an estimated 630,000 ounces of gold - a 53 percent increase over previous estimates - with steep potential for 1.41 million ounces more in inferred resources. Joana is still in early preproduction, but Gilbert believes the site is promising.

Further south, Aurizon is developing the Kipawa project, which is still in the early stages of exploratory pre-production. But the company has found uranium and other rare earth metals in addition to gold. Here, Aurizon has increased its land position to 1,277 mineral claims covering approximately 75,000 hectares.

“Currently, we’re doing a preliminary technical assessment in order to provide us with the technical risk behind the projects,” Gilbert says. “If this is positive, we’ll eventually move to pre-feasibility study stage.”

Other future challenges for Aurizon include effectively growing its labor base to meet the company’s increasing needs, and increasing directed career coaching and employee evaluation to improve labor quality. Aurizon hopes to continue implementing new engineering and geology software, and expand its all-wireless communications. “Human resources were a big challenge here, so we have to think differently,” Gilbert says. “We don’t really have a choice.”

Mineral reserves update

On April 1st 2008, Aurizon published mineral reserves and resources estimates - as at December 31, 2007 - for its Casa Berardi and Joanna projects. Upon achieving commercial production at Casa Berardi, Aurizon started the process of converting mineral resources to mineral reserves.

The gain in mineral reserves from resource conversion has been offset by 2007 mine production, a reduction in projected mining recoveries and an increase in cut-off grade.

Using the three year trailing average gold price of US$581 per ounce, mineral reserves are estimated at 3.1 million tonnes averaging 9.3 grams of gold per tonne for 918,000 ounces, resulting in a gain of 21 percent in grade and a depletion of 251,000 ounces.

Current gold prices are significantly higher than US$581 per ounce and, as a result, the 2008 mining plan includes the production of 77,000 tonnes averaging 4.3 grams of gold per tonne or 11,000 ounces, currently classified as mineral resources. These resources are located within Zones 113 and North West, close to existing development and underground infrastructure.

Total measured and indicated mineral resource estimates result in a gain of 456,000 ounces (compared to 2006), including increases of 136,000 ounces at Casa Berardi and 320,000 ounces at Joanna.

Total inferred mineral resource estimates result in a gain of 465,000 ounces (compared to 2006), including increases of 154,000 ounces at Casa Berardi and 311,000 ounces at Joanna.

A new inferred mineral resource estimate for the newly discovered Zone 123-S, located one kilometre east of the West Mine area at Casa Berardi, resulted in inferred mineral resources of 714,000 tonnes averaging 9.4 grams of gold per tonne for 216,000 ounces.

Aurizon is focused on developing its existing projects in the Abitibi region of north-western Quebec, which one of the world’s most prolific gold and base metal regions