Aurcana Corporation: Site Progress Update and the Virginius North Project Staffing Updates
Vancouver, BC – March 26, 2020 - Aurcana Corporation ("Aurcana" or the "Company") (TSXV: AUN; OTC: AUNFF) Vancouver, BC - is pleased to provide a progress update for the Revenue-Virginius Mine in Ouray, CO, including the Virginius North underground development project (“VN Project”) currently underway in preparation for a full mine restart. During the third quarter of 2019 and the first quarter of 2020, Aurcana has cumulatively raised C$14.8 million in equity in order to fund working capital and advance the Virginius North project.
The VN Project (November 11, 2019 news release - https://tinyurl.com/tc5y9pd ) entails initiating the planned horizontal and vertical development to access the 1500 and eventually 1200 levels on the Virginius vein in the Monagnahela area of the mine. Once the level access is completed, the Company will then be in a position to sample and assay along these levels in conjunction with the planned lateral development.
In preparation for the commencement of the vertical development and subsequent lateral development on the 1500L a cross-cut is nearing completion on the 2000L. The cross-cut is necessary in order to correctly locate and orient the vertical raise to the 1500L and to allow efficient removal of waste from the development process. The Number 1 Alimik raise climber is being refurbished and will be completed by mid-April along with a number of other important pieces of mining equipment needed to efficiently execute the VN development plan.
The goal of the VN Project is two-fold:
1) The vertical development of the VN Project is required as part of the current mine plan based on the 2018 feasibility study (the “FS”) prepared in accordance with National Instrument NI 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) demonstrating an economic restart of the RV Mine. A copy of the 2018 FS is posted on the Company’s website and is also available on the Company’s profile on SEDAR at www.sedar.com. This development should reduce the time and capital to production which will further prepare the mine as we seek to secure financing for the re-start of operations.
2) Aurcana expects the sample and assay program included in the VN Project to provide information that may allow resources on the 1500 level and areas North of the current stopes on the 1800 level and 1200 level that are currently classified as inferred to be converted at a minimum, to a category of indicated, thereby also allowing conversion of these resources to reserves after a review of the economics of the FS mine plan. The FS mine plan directly passes by the potential stopes that have previously been excluded from the FS mine plan. Ultimately, the Company believes the resource conversion - if successful - has the potential to materially increase mine life with a commensurate uplift in net asset value.
In conjunction with the VN Project and to supplement the leadership at site as the Company progresses to a full restart, Aurcana is pleased to announce the hiring of Mike Lee as general manager at the Revenue Virginius Mine. Mr. Lee has over 40 years’ experience in mining, including significant narrow vein and conventional mines while working at Coeur d’Alene Mines and ASARCO. He was also instrumental in the construction of numerous other mining startup operations around the world. Through his and Aurcana’s COO Brian Briggs connections locally in Colorado and across the industry, the Company is also adding additional miners to accelerate the VN Project’s progress. The Company is pleased to be attracting experienced managers and miners to join in this development campaign as the first step toward full restart.
With the hiring of Mike Lee and staffing up with additional mining crews the company is on schedule with the VN Project development plan and is targeting samples to be available for testing in the second quarter of this year.
As of the date of this press release Aurcana remains unaffected by the Covid-19 virus. Vancouver staff have been successfully working remotely, and operations at the Revenue-Virginius mine in Ouray are able to continue while at the same time following local, state and federal guidelines for social distancing and other prudent containment measures.
Qualified Person Statement The scientific and technical content of this news release was reviewed and approved by Michael Gross, P.Geo., a “qualified person” within the meaning of NI 43-101.
ABOUT AURCANA CORPORATION Aurcana Corporation owns the Revenue-Virginius Mine, in Colorado, and the Shafter-Presidio Silver Project in Texas, US. The primary resource at Shafter and Revenue-Virginius is silver. Both are fully permitted for production.
ON BEHALF OF THE BOARD OF DIRECTORS OF AURCANA CORPORATION
“Kevin Drover”, President & CEO
For further information, visit the website at www.aurcana.com or contact: Aurcana Corporation 850 – 789 West Pender Street Vancouver, BC V6C 1H2
Phone: (604) 331-9333
Gary Lindsey, Corporate Communications Phone: (720)-273-6224 Email: gary@strata-star.com
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
* Engaged in the final construction of a fully-permitted high-grade silver mine in Colorado.
* The resource is 30 million oz. at 700 gpt, with excellent exploration potential.
* The project is construction-ready and all they need is financing.
Stock Name - Aurcana Corp Symbol (US) - OTCPK:AUNFF Type - Silver Category - Late Stage Development Share Price (US) - $0.29 FD Shares - 201M FD Mkt Cap (5/12/2020) - $58M
I have been following Aurcana's high-grade silver project (Revenue-Virginius Mine) in Colorado for a while now. I have waited patiently to see how it progressed. Recently, I watched a video interview with the CEO explaining the project and its current status. I was impressed. They seem to be close to the finish line.
Aurcana Corp. is under the radar. I don't think investors realize the quality of their RV project. It is in a good location in Colorado, where mining has been common in the past. In my opinion, there aren't any location issues. Plus, what makes it special is the high-grade and exploration potential. The resource is 30 million oz. (700 gpt), but it will increase in size. Management is excited about what they are going to find once they start drilling certain targets. It is a past-producing mine with several known veins.
All development stocks carry significant risk. The risk for Aurcana is that they do not get financing, or they have higher than expected costs, or silver prices do not rise. Plus, there are likely several other risks that I am not aware of that are lurking. That said, I think the risk-reward is compelling.
In addition to the RV mine, they have another project in their back pocket. Their Shafter mine in Texas is on care & maintenance and has a low capex to restart. It is a small mine with only 18 million oz. (240 gpt). It requires higher silver prices to restart, but was producing 1.5 million oz. before it was shut down by Aurcana. I think this mine will get restarted after we get above $20 silver.
When you combine the production potential of RV and Shafter, they can easily become a 3 million oz. producer. Both projects are permitted with a mill. Plus, management is intent on becoming a successful producer that rewards shareholders. They know from their past history after they lost their La Negra mine that shareholders were hurt. They want to make that up to them.
Company Overview
Aurcana Corp. had a market cap of $545 million in 2011 and everything looked great. Then silver prices collapsed from 2011 to 2015. They had to sell their La Negra mine in 2015 (which was producing 3 million oz. per year) to pay off their outstanding debt. Since then their share price has crashed and they have been waiting for silver prices to rise. However, they recently acquired Ouray Silver and their RV mine.
RV is permitted with a feasibility study. They need to raise $37 million to begin production at RV at 2 million oz. annual production. It can be financed and built at $16 silver, with all-in costs (free cash flow) forecast below $14 per oz. Once RV begins production, they will use the cash flow to return their Shafter mine to production.
Shafter is on care and maintenance. They can resume production at around 1.5 million oz. per year. The capex to resume production is around $20 million. They will need about $20 silver to restart the mine.
They recently did a 5 to 1 reverse split, which is usually the precursor to a financing. I think they will raise $20 million in debt and another $15 million in equity financing to build RV. If they succeed in raising $35 million, they will be in an excellent position to become a silver producer. As a speculation stock, it looks pretty good.
When you do the math, their potential annual future free cash flow will be higher than their current FD market cap of $58 million. That is one of the best indicators for an undervalued stock. Why? Because a company can be valued at 5x, 10x, even 20x free cash flow.
* Location: USA (Colorado). * RV Project: 30 million oz. at 700 gpt (likely to increase in size). * Mine Type: Underground (thin veins). * Capex: $37 million (they have been spending money on development, so the required financing is much lower than this amount, perhaps only $25 million). * Costs: $8 per oz. cash costs / $14 per oz. all-in costs (more likely $15 or $16). * Permitted and construction ready. * Annual Production: 2 million oz. (likely to increase with exploration success). * Recovery Rate: 90% recovery rate (my estimate). * After-tax IRR: 50% (approximately). * Production Date: 2022 (my estimate) (7-month build).
Management
Their management team has extensive experience in building and operating mines. They shouldn't have any trouble building and operating the RV mine. They are ready to go once they get financing.
They have about $3 million in cash and have no debt. They are currently trying to finance construction, so they do not need to spend very much money until they get financing.
Concerns/Red Flags
I mentioned the red flags in the introduction. They need financing, higher silver prices, and costs not to exceed their targets. If silver remains under $16, they might have trouble getting financing in 2020. Also, they will need to dilute shares to finance the capex. Plus, there is always the chance that they could sell the project for a small premium.
Another red flag is that they are somewhat dependent on base metal offsets (lead and zinc) for their low cash costs. They list their reserves at 1265 gpt silver equivalent. However, silver is only about half that total. I wish they listed their cash costs for silver-only to give us an idea of the risk.
Future Valuation
Note: I'm going to use two silver price scenarios and you can pick the one you prefer. I am using a free cash flow multiplier of 7, which I think is realistic if silver prices rise and there is good investor sentiment for silver miners, which are becoming rare.
Scenario #1 ($50 Silver Price)
* Estimated future All-In Cost Per Oz.: $18
* Estimated future annual free cash flow: 3 million oz. x $32 = $96 million
* Estimated future market cap: $96 million x 7 = $700 million
* Comparing the current market cap ($58 million) to the future market cap ($700 million), you get a potential 1,100% increase.
Scenario #2 ($72 Silver Price)
* Estimated future All-In Cost Per Oz.: $20
* Estimated future annual free cash flow: 3 million oz. x $55 = $165 million
* Estimated future market cap: $165 million x 7 = $1.1 billion
* Comparing the current market cap ($58 million) to the future market cap ($1.1 billion), you get a potential 1,900% increase.
Both scenarios are optimistic because I am not reducing the upside potential for the share dilution required to fund the capex. Also, this is a long-term expectation that they reach 3 million oz. annual production. They likely won't reach that level for 3-5 years.
For scenario #2 (the most optimistic) valuation, it assumes that Aurcana will reach 3 million oz. of production and they will reach $165 million in free cash flow. This high cash flow is based on the assumption that silver prices will reach $75 per oz. and all-in costs (free cash flow) are $20 per oz. This is close to a best-case scenario for the long term.
Note: I don't think it is too optimistic to anticipate higher valuations than these two scenarios. I think it is plausible that quality mid-tier silver producers will receive cash flow multiples of at least 10, and 20 is not inconceivable. I was going to use a multiplier of 10 (which is my expectation), but decided to be more conservative. I also don't think it is implausible to expect $100 silver prices. Run the numbers with a 15x cash flow multiplier at $100 silver and Aurcana has huge upside potential.
Conclusion
Aurcana Corp. looks really good from a risk-reward standpoint. If they get financed and silver prices begin to trend higher, their share price will do very well. And if silver prices blast off, they are extremely well leveraged for that outcome.
This development story does not have everything you look for, but still has most of the factors. Let's review:
1) High upside potential. (Yes)
2) High insider ownership to prevent a hostile takeover. (Yes)
3) Quality management team. (Yes)
4) Desire by the company to get a high return for shareholders. (Yes)
5) Low to moderate cash costs per oz. (Yes)
6) Low to moderate capex. (Yes)
7) Good entry price. (Yes)
8) Good buzz. (No)
9) Low downside potential. (No)
10) Long-life mine. (Yes)
11) Good grade. (Yes)
12) Good recovery rate. (Yes)
13) Good location. (Yes)
14) Good exploration potential. (Yes)
15) Good pipeline - potential second mine. (Yes)
Note: You can check the data included in this analysis on the company website.http://www.aurcana.com/
Disclosure: I am/we are long AUNFF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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