AuRico Metals Reports 2017 Third Quarter Results

November 08, 2017

TORONTO, Nov. 8, 2017 /CNW/ - AuRico Metals Inc. (TSX: AMI), ("AuRico" or the "Company") today reported its financial results for the third quarter. For complete details of the Financial Statements and associated Management's Discussion and Analysis for the quarter ended September 30, 2017, please see the Company's filings on SEDAR (www.sedar.com) or the Company's website (www.auricometals.ca). All amounts are in US dollars unless otherwise indicated.

Recent Highlights include:

  • Entered into a definitive arrangement agreement with Centerra Gold Inc. ("Centerra"), whereby Centerra will acquire all of the issued and outstanding common shares of the Company for $1.80 in cash consideration per share;
  • Achieved record royalty revenue of $2.9 million, an increase of 30% compared to Q3 2016;
  • Reported a cash balance of $18.8 million at September 30, 2017, an increase of 62% from Q3 2016;
  • On August 31, 2017, submitted Kemess Underground's permit applications to the Major Mines Permitting Office ("MMPO") in British Columbia;
  • On November 2, 2017, Kemess Underground's permit applications passed screening and were accepted for review by the Mine Review Committee ("MRC");
  • Completed a 13,923 metre drill campaign at Kemess East between July and October 2017, with full results anticipated to be available before the end of 2017; and
  • On November 7, 2017, Kirkland Lake Gold Ltd. ("Kirkland") announced a 120 metre down-plunge extension of the Swan Zone at Fosterville.

 

Chris Richter, President and CEO of AuRico Metals, commented; "During the third quarter we continued to progress the Kemess Underground Project towards 'construction ready' status with the advancement of permitting and detailed engineering. In parallel, we completed a 14,000 metre drill program at Kemess East (with full assay results expected this quarter) while also recording our best ever quarter for royalty revenue."

He continued, "The definitive arrangement agreement announced yesterday, whereby Centerra will acquire all of the issued and outstanding common shares of AuRico for C$1.80 in cash consideration per share (a 38% premium to our prior day closing price) represents an excellent outcome for our shareholders, who have supported us in our efforts to both surface value at Kemess and grow our royalty business since the Company's inception in 2015."

Near-Term Corporate Objectives

The Company's key near-term objectives include:

  • Progress permitting and detailed engineering for the Kemess Underground project ahead of a potential decision to commence early construction activities (H1 2018);
  • Release results of 2017 Kemess East drill program (Q4 2017), and updated Kemess East resource estimate (Q1 2018);
  • Advance integrated Kemess Underground and Kemess East Feasibility Study (mid-2018);
  • Evaluation of funding alternatives for the potential development of the Kemess Underground project (ongoing).

 

Proposed Transaction with Centerra

As announced on November 7, 2017 the Company has entered into a definitive arrangement agreement (the "Arrangement Agreement") whereby Centerra will acquire all of the issued and outstanding common shares of AuRico Metals (the "Arrangement") for C$1.80 in cash consideration per share (the "Purchase Price"), representing an aggregate transaction value of C$310 million.

The Purchase Price represents a 38% premium to the closing price of AuRico Metals' common shares on the Toronto Stock Exchange ("TSX") on November 6, 2017 and a premium of 37% to the 20-day volume weighted average price ("VWAP") as of such date.

The proposed business combination will be effected by way of a plan of arrangement completed under the Business Corporations Act (Ontario). The Arrangement will require approval by 66 2/3 percent of the votes cast at a special meeting of AuRico Metals shareholders. In addition to shareholder and court approvals, the Arrangement is subject to applicable regulatory approvals and the satisfaction of certain other closing conditions customary in a transaction of this nature. Directors and senior officers of AuRico Metals, in addition to Alamos Gold Inc., collectively representing approximately 11.4 percent of the outstanding AuRico Metals common shares, have entered into support agreements pursuant to which they have agreed to vote in favour of the proposed transaction.

The Arrangement Agreement includes customary provisions including non-solicitation provisions, including a C$12 million termination fee payable to Centerra under certain customary circumstances. Full details of the Arrangement will be included in the meeting materials which are expected to be mailed to AuRico shareholders in connection with the AuRico shareholder meeting that will take place in December 2017 with closing of the Arrangement expected in January 2018.

2017 Outlook

AuRico Metals' goal is to deliver sustained value creation for the Company's many stakeholders. We will look to continue to create shareholder value by advancing the Kemess Underground project, by advancing the Kemess East project, by completing an integrated feasibility study, and by enhancing the value of our royalty portfolio.

The section below contains forward looking information; please refer to the Company's cautionary note regarding forward looking statements.  The Company is increasing its guidance at Kemess East due to a decision to drill 2 additional holes.  Aside from Kemess East capital expenditures, Company guidance is consistent with that disclosed in its Q2 Management's Discussion & Analysis. assuming a 0.75 CAD to USD exchange rate and $1,250 per ounce gold price:



(in millions)

2017

Guidance



Royalty revenues (pre-tax)

$10.5 to $11.0



General and administrative expense, excluding stock-based compensation

$3.0



Care and maintenance expense, excluding powerline brushing

$4.0



Powerline brushing campaign

$1.5



Kemess Underground capital expenditures

$6.0 to $7.0



Kemess East capital expenditures

$4.4*

 

* Company guidance has been increased from $4.0 million to $4.4 million due to expansion of its Kemess East drill program from 12,000 metres to 14,000 metres.

Royalty revenue guidance has been maintained for 2017. The guidance range disclosed in the table above is based on the following guidance ranges provided by the operators:





Asset

Royalty

Guidance Low

Guidance High

Young-Davidson

1.5%

200,000

210,000

Fosterville

2.0%

250,000

260,000

Hemlo*

0.3%

205,000

220,000

Eagle River

0.5%

45,000

49,000

 

* Company guidance assumes that 75% of production at Hemlo will be from the Williams mine.

Operations Update

Kemess Underground

On August 31, 2017, the Company submitted its Kemess Underground Project permit applications to the MMPO for screening. On November 2, 2017, the Company was notified by the MMPO that the permit applications have passed screening and have been accepted for review by the MRC. The MRC will begin the review process on November 7, 2017. The permitting process is anticipated to be completed in Q2 2018.  

During the first quarter, the EAO granted an Environmental Assessment Certificate for the Kemess Underground project. Earlier this year, the Company announced the addition of two project managers to the Kemess Underground project team, a Mining Project Manager and a Surface Construction Project Manager. Both new hires bring a wealth of experience to the Company, both in technical knowledge of panel caving and surface construction, and experience in British Columbia.

In May 2017, the Company announced the signing of an IBA for the Kemess Underground project with Takla Lake, Tsay Key Dene and Kwadacha First Nations, collectively Tse Key Nay ("TKN"), an alliance of three Sekani First Nations. The IBA provides a framework that formalizes the long-term cooperative relationship between the Company and the TKN First Nations over the life of the project. The IBA captures the mutual commitment to consult and maintain an open, respectful and cooperative relationship throughout the development, operation and closure of the Kemess Underground project. The IBA further provides for meaningful TKN participation in Kemess Underground through training, employment, business opportunities, environmental protection and other means.

In anticipation of all required construction and operating permits being received by the end of Q2 2018, detailed engineering on access corridor construction related activities has been completed.  The access corridor includes a road from the Kemess South site to the location of the triple decline portals that will be used to access the Kemess Underground orebody.

Tender documents related to initial construction activities have been issued and proposal assessment is in progress. The awarding of contracts will ultimately be subject to a decision by the Company's Board of Directors to advance initial construction activities.

Kemess East

On May 29, 2017, the Company announced the results of a Preliminary Economic Assessment on the Kemess East project. 

The Company recently completed a 13,923 metre drill program at Kemess East. Complete assay results are expected before the end of the year. This program included infill drilling, expansion drilling on the outer edges of the known deposit, and exploration holes testing the Kemess Offset Zone. The Kemess Offset Zone is located between the Kemess Underground and Kemess East deposits, which are one kilometre apart. 

Kliyul

On March 17, 2017, AuRico Metals entered into a binding Letter Agreement with First Quantum on the Kliyul property, located in British Columbia, approximately 50 km south of AuRico Metals's Kemess property. Under the terms of the agreement, First Quantum has 12 months to evaluate the Kliyul project. It can then choose to enter into an Option to earn a 51% interest by incurring a minimum of C$5 million of expenditures on the project prior to December 31, 2021.  First Quantum's interest will increase by a further 29% (80% total) when a decision to mine is made. Upon a decision to mine, AuRico Metals will be entitled to receive advance royalty payments of C$2 million per year until the commencement of commercial production, and will retain a 0.5% NSR royalty once production commences.

As part of its evaluation of the property, First Quantum agreed to fund an early stage exploration program at Kliyul during 2017, up to an approved amount.  The program was conducted in August 2017 and total expenditures were in-line with budget.

Royalties

During the three and nine months ended September 30, 2017, the Company recognized revenues from the following royalty assets:







($ in millions)

Fosterville

Young-Davidson

Hemlo*

Eagle River

Total


(2% NSR)

(1.5% NSR)

(0.25% NSR)

(0.5% NSR)


Q3 2017 Revenue

$1.6

$1.0

$0.2

$0.1

$2.9

Q2 2017 Revenue

$1.7

$0.9

$0.1

$0.1

$2.8

Q1 2017 Revenue

$1.1

$0.8

$0.2

$0.1

$2.2


YTD Revenue

$4.4

$2.7

$0.5

$0.3

$7.9

 






Operator's Production

Fosterville

Young-Davidson

Hemlo*

Eagle River

(in ounces)





Q3 2017 Production

61,500

55,800

37,000

13,313

Q2 2017 Production

77,069

47,300

42,000

10,597

Q1 2017 Production

46,083

40,400

54,000

13,588


YTD Production

184,652

143,500

133,000

37,498

 

* Note that the Company's royalty is on the Williams mine at Hemlo. 

The Company recognizes quarterly revenue from its royalty assets based on a combination of confirmation of quarterly sales amounts, production guidance and recent sales of the underlying operations.  During the three months ended September 30, 2017, the Young-Davidson mine reported sales of 55,267 gold ounces and the Fosterville mine reported sales of 62,998 gold ounces.

Recent royalty portfolio highlights include:

  • On November 7, 2017, Kirkland announced a 120 metre down-plunge extension of the Swan Zone at Fosterville. The Swan Zone is the highest grade area of the Fosterville mine, with an initial Mineral Reserve of 532,000 ounces at an average grade of 58.8 gold grams per tonne. The continuity of high-grade visible gold mineralization in the Swan Zone is now defined over a plunge length of 460 metres and vertical extent of 300 metres (for more information visit the Kirkland Lake Gold website at http://www.klgold.com and refer to the press release dated November 7, 2017).
  • On November 1, 2017, Wesdome Gold Mines Ltd. ("Wesdome") announced recent underground drilling results that confirmed continuity and extended up-plunge gold mineralization at the Eagle River 300E Zone (for more information visit the Wesdome website at http://www.wesdome.com and refer to the press release dated November 1, 2017)..
  • On October 18, 2017, the Company entered into an agreement to sell 100% of the Williams property in British Columbia, which was acquired as part of the Kiska transaction, to International Samuel Exploration Corporation ("International Samuel") in exchange for an upfront payment of four million common shares of International Samuel (with potential additional milestone payments of up to 1.75 million shares dependent on project milestones) and a 0.50% NSR royalty (in addition to the 0.75% NSR already held by AuRico Metals on the property).
  • On October 12, 2017, Alamos Gold Inc. ("Alamos") announced record gold production of 55,800 ounces at Young-Davidson during the third quarter, 28% higher than the same period of 2016 and 18% higher than the second quarter of 2017 (for more information visit the Alamos Gold website at http://www.alamosgold.com and refer to the press release dated October 12, 2017).
  • On October 11, 2017, Kirkland announced gold production of 61,500 ounces at Fosterville during the third quarter, 66% higher than the same period of 2016 (for more information visit the Kirkland Lake Gold website at http://www.klgold.com and refer to the press release dated October 11, 2017).
  • On September 20, 2017, the Company entered into an agreement to sell 100% of the Grizzly property to International Samuel in exchange for three million common shares of International Samuel (two million upfront and an additional one million in October 2018) and a 1% NSR royalty.
  • On September 11, 2017, Kirkland filed a technical report for Fosterville, updating its mineral reserves to 1,031,000 ounces of gold, from 490,000 ounces of gold at December 31, 2016, increasing the mineral reserves by 110% (for more information visit the Kirkland Lake Gold website at http://www.klgold.com and refer to the press release dated September 11, 2017).

 

About AuRico Metals

AuRico Metals is a mining development and royalty company with a 100% interest in the Kemess property in British Columbia, Canada. The Kemess property hosts the feasibility-stage Kemess Underground Gold-Copper project, the Kemess East exploration project, and the infrastructure pertaining to the past producing Kemess South mine. AuRico's royalty portfolio includes a 1.5% NSR royalty on the Young-Davidson Gold Mine and a 2% NSR royalty on the Fosterville Mine, as well as a portfolio of additional producing and pre-production royalty assets located in North America and Australia.

Cautionary Statement on Forward-Looking Information

This press release contains forward-looking statements and forward-looking information as defined under Canadian and U.S. securities laws. All statements, other than statements of historical fact, are, or may be deemed to be, forward-looking statements. The words "expect", "believe", "anticipate", "will", "intend", "estimate", "forecast", "budget" and similar expressions identify forward-looking statements. Forward-looking statements include statements related to the Company's outlook and key deliverables for Kemess over the next year.  These statements are based on a number of factors and assumptions that, while considered reasonable by management at the time of making such statements, are inherently subject to significant business, economic and competitive uncertainties and contingencies.  Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements.  Such forward-looking statements and the factors and assumptions underlying them in this document include, but are not limited to:

  • The completion of the Arrangement in accordance with its terms, including the receipt of all required approvals to consummate the Arrangement.
  • Royalty revenue guidance may be impacted by the performance of the Young-Davidson, Fosterville, Hemlo and Eagle River mines. Management has based its revenue assumptions on the latest guidance provided by the operators of these assets, but there is uncertainty as to whether operators will achieve stated production guidance. Royalty revenue is also based on an assumed gold price of $1,250 per ounce. The Company's gold price assumption may be inaccurate; every $50 change in gold price assumption impacts pre-tax revenue by approximately $0.4 million.
  • General and administrative expense guidance may be impacted by changes in foreign exchange rates, the integration of Kiska, employee relations, litigation, time spent by officers and employees on general and administrative activities, and business opportunities that may be pursued by the Company.
  • Care and maintenance expense guidance may be impacted by changes in foreign exchange rates, employee relations, electricity rates in British Columbia, weather in the region surrounding the Kemess site, equipment reliability, extent of powerline brushing required to optimally maintain the powerline, quality of service received by vendors and consultants, and the price of consumables.
  • Kemess Underground capital expenditures are at the Company's discretion and will be impacted by changes in foreign exchange rates, the number of comments or questions raised by First Nations partners and Government during the review of project permits, additional studies required in order to address concerns raised and the results of those studies, quality of service received by consultants, optimization efforts by management, and credit market conditions and conditions in financial markets generally.
  • Kemess East capital expenditures will be impacted by changes in foreign exchange rates, weather conditions, quality of service received by consultants, and the extent of any additional drilling conducted at Kemess East in 2017.
  • The estimates, models and assumptions contained in the Kemess Underground Feasibility Study, including planned production rates, which may be impacted by changes in commodity prices and the exchange rate between the Canadian dollar and US dollar from assumed levels, estimated future production and cost of sales forecasts meeting expectations, estimated labour and materials costs being consistent with the Company's expectations, the accuracy of current mineral reserve and mineral resource estimates as contemplated by the Feasibility Study, the viability of Kemess Underground including, but not limited to, permitting, development and expansion being consistent with the Company's current expectations, access to capital markets, including but not limited to identifying financing options and securing partial project financing for the Kemess Underground project, being consistent with the Company's current expectations.
  • The estimates, models and assumptions contained in the Kemess East Preliminary Economic Assessment and Mineral Resource estimate, including planned production rates, which may be impacted by changes in commodity prices and the exchange rate between the Canadian dollar and US dollar from assumed levels, estimated future production and cost of sales forecasts meeting expectations, estimated labour and materials costs being consistent with the Company's expectations, the accuracy of current mineral resource estimates, the viability of Kemess East including, but not limited to, permitting, development and expansion being consistent with the Company's current expectations.

 

The Company has made forward-looking statements relating to corporate objectives and key deliverables over the next 12 months, including permitting, timing of regulatory decisions relating to permitting, progress on detailed engineering, the Company's ability to fund forecasted cash shortfalls, the Company's ability to create value for shareholders, sufficiency of working capital for future commitments, the timing of the integrated Kemess Underground and Kemess East Feasibility Study, ability and timing of a potential development decision on Kemess Underground, and other statements that express management's expectations or estimates of future performance. 

Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained herein. Such statements are based on a number of assumptions which may prove to be incorrect, including assumptions about: the completion of the Arrangement in accordance with its terms and the receipt of the required approvals to so complete, business and economic conditions; commodity prices and the price of key inputs such as labour, fuel and electricity; credit market conditions and conditions in financial markets generally; development schedules and the associated costs; ability to procure equipment and supplies and on a timely basis; the timing and ability to obtain permits and other approvals for projects and operations; the ability to attract and retain skilled employees and contractors for the operations; the accuracy of reserve and resource estimates; the integration of Kiska, the impact of changes in currency exchange rates on costs and results; interest rates; taxation; and ongoing relations with employees and business partners. The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law. 

Readers are cautioned that forward-looking statements are not guarantees of future performance. All of the forward-looking statements made in this press release are qualified by these cautionary statements.

Other information
The technical information disclosed in this press release relating to the Kemess Underground project, Kemess East project and the Company's material royalty properties, being the Young-Davidson and Fosterville NSR royalties, has been approved by Mr. John Fitzgerald, an officer of the Company, who is a qualified person within the meaning of National Instrument 43-101. 

SOURCE AuRico Metals

please visit the AuRico Metals website at www.auricometals.ca or contact: Chris Richter,President and Chief Executive Officer, AuRico Metals Inc., 416-216-2780, chris.richter@auricometals.ca; David Flahr, Vice President, Finance, AuRico Metals Inc., 416-216-2780, david.flahr@auricometals.ca