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Existing investors cornerstone Aureus’s raise, but at a price

Published: 12:06 30 Nov 2015 GMT

Dave-Reading-at-New-Liberty---upgraded_565c426fcb12c
David Reading at New Liberty

The gold price, at around US$1,055 per ounce, is currently bumping around at close to five year lows, with the momentum likely to be on the downside as the US Federal Reserve looks to raise interest rates sooner rather than later.

That’s the backdrop against which Aureus Mining (LON:AUE) has executed its latest fundraising – a combined debt and equity package worth a total of US$21.5mln.

The US$11.5mln equity component is priced at 5p per share, a sharp discount on the previous close, and the cause of significant share price weakness on the day.

But if investors could be forgiven for feeling a little bit bruised by the latest developments, it’s also worth remembering that David Reading and the team at Aureus are among the few operators who’ve been able to bring any kind of smaller mine into production at all over the past few years.

Aureus’s New Liberty gold mine in Liberia has now shipped 12 consignments of gold doré, equating to 13,500 ounces of gold, and expects to ship another 13,500 ounces before the end of the year.

In the face of the Ebola crisis, a breakdown of a crusher, a gold price that has come off by more than 40 per cent since 2011, and extremely unfavourable conditions in the capital markets, it’s a fine achievement.

That being said, there's no doubt the gold price weakness has taken its toll.

Back in 2012 Aureus originally modelled its development of New Liberty on the assumption of a US$1,400 gold price. That price was kept in when the company released a new optimised study the following year as projected cash costs were cut to US$668 per ounce.

Then, in February of 2015, a further update to the mine plan was released, as construction began to get underway in earnest.

This study showed New Liberty to have a post-tax net present value of US$328mln on the assumption of a US$1,300 gold price and, perhaps more crucially, an all-in-sustaining cost of US$789 per ounce.

Subsequent developments in the gold markets have shown that even that reduced gold price assumption currently looks optimistic.

There's now a far greater pressure on margins than the company would have liked, and accordingly almost three quarters of the new money raised will go towards reducing what Aureus calls “outstanding creditor balances” down to “normal operating levels.”

Given supportive shareholders and helpful bankers such an undertaking looks relatively straightforward in spite of the sharp drop in the share price.

After all, although the shares fell heavily, it was on very minimal volume - by mid-morning on the day the fundraising was announced only 6,875 shares had changed hands, with a total value of less than £500.

So it wasn’t investor selling on the market that slammed the price, but the discount Aureus itself was forced to apply by investors coming in on the raise itself.

In this context it’s noteworthy that existing 15% shareholder Richard Griffiths has agreed to subscribe for nearly US$3mln worth of new shares.

And it will be interesting to see what sort of results ongoing discussions with the International Finance Corporation yield.

The IFC is already a major investor in Aureus, and could yet ride to the rescue in the current situation with more funds.

Aureus’s broker Numis expects the raise to close on 9th December, and shows inscrutable confidence in commentary that the full amount will be raised. In fact there was even an option to increase the size of the offering by 10% by 16:30 Eastern Time on 30th November, the date of the announcement.

Whether the market is likely to show quite that much enthusiasm is moot.

Especially as Aureus also cautioned that on the current gold price it might not be able to meet debt repayments scheduled for 2017.

But it would be premature to read too much into that. If David Reading can build a mine at a time when hardly anyone else can, then further debt rescheduling ought to be a piece of cake.

But there’s no doubt that these are nervous times. 

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