Update: Aura Minerals Increases Its Gold Loan By $15.5 Million

Summary

• Aura Minerals has obtained a $15.5 million addition to its March gold loan.
• I had not anticipated this, but it makes sense given the company's near-term high mine closure costs.
• Aura Minerals is a high-risk company, but there are few stocks with more upside potential for gold/copper bulls.

Aura Minerals (ARMZF) just announced that it has gotten another $15.5 million from Auramet International LLC (new release available on Sedar). As per the agreement, the company will repay the loan in 50 weekly installments of 305 ounces of gold starting in February, for a total of 15,250 ounces. It has also hedged an additional 35,300 oz. of gold production at $1,207.46.

In addition, the company has issued 4.5 million warrants that have an exercise price of $0.11/share, and they expire in 2 years.

Investors will recall that in my recent bullish article on Aura Minerals, I argued that the company is highly undervalued, as its San Andres gold mine in Honduras is generating an incredible amount of cash flow, while its Aranzazu copper/gold mine is growing production and reducing costs.

The stock has been incredibly weak, as investors are concerned that the company's production is declining while it has debt obligations. The former results from the fact that the company's 2 Brazilian gold mines are shutting down. This not only means reduced production, but also expensive mine closure costs. The company also had $80 million in current liabilities as of the end of September, which is a lot for a small company with high average production costs (the Brazilian gold mines and Aranzazu are high-cost assets).

Nevertheless, Aura Minerals' San Andres Mine just saw an increase in reserves and plummeting production costs, and it generated $0.02/share in net income for the third quarter vs. a $0.06/share price tag. Clearly, investors are overly anxious, while very few see the awesome opportunity here given the company's past of value destruction.

This is still a relatively high-risk proposition, but the company has sufficient gold production at low costs - with hedges in place - to generate the cash flow it needs to get through this rough patch, and it will then be able to generate cash flow from 2 mines, San Andres and Aranzazu, while it has limited debt. With this in mind, the stock has the potential to generate substantial returns for those willing to take a risk at the current valuation.

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Analyst’s Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.