Exposure To Country Risk: The AuRico Gold Edition

| About: AuRico Gold (AUQ)

AuRico Gold (NYSE:AUQ) is a gold mining company based in Canada operating the Young-Davidson mine in Northern Ontario, Canada, and the El Chanate mine in Sonora, Mexico. Additionally the company has completed a feasibility study for the Canadian Kemess Underground project and retained a 50% interest in the Mexican Orion project. AuRico Gold has restructured its asset portfolio in 2012 retaining the assets listed above and divesting two mines each mines in Mexico and Australia.

AuRico presently has a market capitalization of $1.2B and the forward P/E is listed as 13.11 on Yahoo.com. Shares of the company are trading at $4.72 at the time of writing; analysts are giving price targets in the range of $4.92 to $8.86 indicating a divergence in opinion on the success of the portfolio re-structure. The table below provides a summary of production, reserves and resources for AuRico Gold still including the attributable production of the assets divested during 2012. We used a silver-to-gold ratio of 50 to compute gold equivalent ounces for the Ocampo and El Cubo mines. In this article we will be evaluating AuRico's exposure to country risk based on this data.

Definitions for the term "country risk" include factors such as political risk, exchange rate risk, economic risk, sovereign risk, transfer risk, socio-economic risk and others. Depending on the source, various contributing factors of country risk are weighted differently.

In previous work we have collated country risk ratings for numerous countries from eight different sources and averaged these ratings into compounded country risk scores. Our compounded country risk ratings range from 0 to 100 with low numbers indicating low risk and high numbers indicating high risk. The most recent results from this work can be found in this article. Readers interested in the specific definitions are encouraged to follow the links to our sources given in this article. The asset profile shown in the first table above can be consolidated listing summations for each country of exposure resulting in the table below where the data is already calculated in percentages of totals for each category. Compounded country risk ratings as documented here are also shown in the central column of the table. The right side of the table shows the weighted risk contributions for each country separately for production, reserves and resources with summarized scores in the bottom line. The individual ratings can be interpreted as ratings going from present risk (production) into the future (inferred resource).


AuRico has a country risk rating of 32.04 when considering 2012 production numbers which still include gold mined from the divested assets. This rating would indicate moderate exposure to country risk.

However, when considering reserves the rating drops to 17.79 and when considering resources the rating drops further to 14.98 (measured and indicated) and 13.87 (inferred) indicating exceptionally low exposure to country risk owing to the Young-Davidson mine and the Kemess project in the low-risk jurisdiction of Canada. These numbers indicate that compared to peers AuRico represents a low country-risk investment proposition for an internationally active mining company.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.