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Though Aurelian Resources, merged into Kinross Gold,
is now a story of the past there are important lessons for investors and
speculators to be learned from the history of this company.
The success story of
Aurelian Resources is probably the best known among junior gold investors in
this cycle. In 2006, Aurelian discovered the giant Fruta
del Norte epithermal gold deposit in the Cordillera del Condor part of the
eastern foothills of the Ecuadorian Andes. The stock went on a meteoric rise
which took it from $0.60 to $40 within a few months as continued drilling
confirmed the initial grades and thicknesses of more than 200 meters grading
double-digit grams per ton.
Speculative
investors reap most of their profits when getting in early on an emerging
play. So this discovery raises an interesting question: Is the discovery of a
company maker like Fruta del Norte just a lucky
shot or are there possibly any prior indications to that a company is about
to find something big?
In Aurelian’s case there is in fact an important lesson to learn
since there were a lot of signals that the market simply overlooked. While
several factors contributed to Aurelian’s success probably the most
important single factor was a methodical exploration program tailored to the natural
conditions of a difficult to access tropical rainforest and a mountaineous terrain with a great number of streams and
rivers.
The very first step in exploration is a thorough historical research
to narrow down on preliminary target areas. Field surveys are then conducted
to visually examine the prospective areas. In the case in point these
preliminary studies showed that a lot of the creeks and rivers in southeast
Ecuador were gold-bearing. However, the source of the mineralization remained
unknown.
In this case the source deposit can only be upstream, so that a
delineation of the watersheds defines the limits of the area where the
deposit has to be located. The mineralization cannot be on the opposite site
of the watershed.
Once the perimeter of the gold bearing hydrological basin was defined,
Aurelian carried out a textbook stream sediment sample program that lead
their geologists upstream to the source of the mineralization. Aurelian
consequently integrated these data in a Geographic Information System. A GIS
is a software technology designed to analyze and recognize spatial data
patterns and to visualize spatial relationships in attractive maps and 3D
models. Aurelian made these maps available to the public all the time via
their website. These maps are a very good example of a typical stream
exploration program. In combination with classic geological mapping, soil
sample analysis, geophysical methods, and exploration drill holes, Aurelian
defined 30 targets for gold and 12 targets of the porphyry copper type.
Assays of samples of the weathered and decayed material of gold bearing rocks
showed the presence of pathfinder elements like arsenic and mercury.
Additionally, historic mining and gold handcrafts by local residents gave
important clues to the potential of the Cordillera del Condor.
An important step in the discovery process was made early on when
Aurelian’s geologists recognized an approximately 45 mile long,
north-south striking fault zone. Known as the Las Peñas
fault this structural element controls the occurrence of gold mineralizations that are literally lined up along this
fault.
A tectonic element of these dimensions usually is easy to spot by
remote sensing technologies. Examples of NASA satellite imagery could be
found in Aurelian’s company brochure on their website as early as 2004,
two years before the discovery of Fruta del Norte.
To the trained eye, the imagery clearly revealed the structural control of
what could possibly define a new unknown gold trend.
In April 2004 Aurelian announced results from 8 boreholes drilled in
the Bonza Las Peñas
prospect, just south of Fruta del Norte. The most
successful bore hole showed 114 meters of 1.58 g/t. Mineralization could be
traced over 500 meters and was open to the north, to the south, and to depth.
Aurelian’s methodical exploration program was beginning to show early
and promising results.
It was in this context that important clues for a similar or even
larger deposit in the Fruta del Norte prospect
became obvious. Fruta del Norte was interpreted as
the northern prolongation of the Bonza las Peñas trend.
Interestingly, Aurelian’s geologists found proof of another
fault zone in boreholes in a nearby copper prospect. This fault zone was
found to offset the Fruta del Norte zone for about
250 meters to depth against the Bonza Las Peñas deposit. This meant that a possible new
deposit in this zone was protected against erosion by the overlying
sediments. So chances were that a new discovery within the Fruta del Norte zone could be even larger by volume than
the Bonza Las Peñas
discovery.
All this information was made available by Aurelian via their website.
However, the market did not recognize the importance of these geological
clues. Aurelian stock declined after the Bonza Las Peñas announcement and consolidated at low levels
throughout 2005.
Summing it all up, astute investors had a chance to recognize Aurelian
Resources as a speculative play with significant chances of a major discovery
early on. The necessary information was hidden in plain sight on their
website. Aurelian kept updating the reports, maps and cross sections on the
website with great detail. As a matter of fact, Aurelian had one of the most
informative and best structured websites of all junior gold companies. The
quality of geological information they provided was outstanding.
Last year’s revision of the Ecuadorian mining law and the
turmoil it raised among foreign mining companies, however, raise another
important point: when is the time to get out of a stock like this? While the
exact date of new government regulations cannot be predicted, a healthy
degree of caution is warranted for companies in similar situations.
Certainly, Aurelian appeared as a big dot on the radar of the Ecuadorian government
after the initial discovery. The dot surely grew larger after the 43-101
compliant initial inferred resource calculation for the Fruta
del Norte deposit came in at 13.7 million ounces. To many observers of the
resource markets, Aurelian must have seemed like a sitting duck, waiting to
be taken aim at. In a situation like this, at least partial profits should
always be taken off the table, while new positions should be entered with
great caution.
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