AuRico Gold (NYSE:AUQ) is having a lot of success at its drill program at the Kemess East project, which is located just one kilometre east of the current underground deposit and 6.5 kilometres from the Kemess mill facility.
Highlights of the company's drilling campaign were released Monday, and include the following impressive results:
- 768 metres of .442 g/t gold and .392% copper, including 132 metres of .755 g/t gold and .5% copper.
- 304 metres of .557 g/t gold and .421% copper, including 76 metres of 1.202 g/t gold and .658% copper.
- 601 metres of .5 g/t gold and .391% copper, including 278 metres of .712 g/t gold and .477% copper.
In my first article on AuRico, I argued that the junior mining company looks like an interesting stock for gold bulls, as the company owns two high quality assets. It continues to ramp up production at its cornerstone Young Davidson mine, while also decreasing cash costs. In fact, Young Davidson reported a 17% decrease in cash costs in the most recent quarter, with the company reporting total cash costs per ounce of $692 at the mine. But I argued the company still has some work to do on improving its overall cost structure, with all-in sustaining costs coming in at $1,101 per ounce, a bit higher than what I expected.
The Kemess underground project could be a potential game-changing mine for the company, and I admittedly have not paid enough attention to it. A feasibility study projects annual production of 105,000 ounces of gold and 44 million pounds of copper, at cash costs of just $213 per ounce. Initial construction capital is a reasonable $437 million, given the size of the project, but since AuRico has $100 million in cash and total debt of $315 million, I think the company will likely need to find a partner to help finance the project.
These exploration results are very positive for a few reasons. First, a new gold-copper deposit has been identified, and this deposit is higher grade than the Kemess underground deposit. Next, the deposit is located in close proximity to the company's existing processing facility.
These results ultimately demonstrate the huge potential of the Kemess project, and an initial resource on the discovery is expected in early 2015. Kemess already contains 1.8 million ounces of gold in reserves and close to 1 billion pounds of copper, but these figures will likely be higher based on these outstanding drill results. I've put AuRico Gold on my watchlist as a result, and I may end up purchasing shares in 2015.
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