this article is not nov. 22 but oct. 16th.

 

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Aurelian Resources confirmed this month it has discovered one of the largest gold deposits in the world, located in Ecuador, raising the attention of majors Barrick Gold and Newmont Mining, sources close to the situation said. But Ecuador’s political uncertainty continues to keep these very buyers at bay as they wait patiently, watching how the new president, Rafael Correa, will rewrite that country’s constitution, it was further said.

On October 4, Aurelian, the TSX-listed exploration company, announced the first national instrument 43-101-compliant, inferred mineral resource estimate for Fruta Del Norte (FDN), a buried epithermal gold-silver discovery on its wholly owned Condor Project in south-eastern Ecuador. The results yielded an initial inferred resource of 58.9m tons of varying grades of silver and gold. Patrick Anderson, Aurelian’s president and CEO, said in a company release that 13.7m ounces of gold “is an outstanding achievement for an initial inferred resource on a discovery made a mere 17 months ago”.

Following Aurelian’s resources report, one source familiar with Newmont said he was sure “everybody” in the sector has their eyes on the company. The head of one natural resources fund described Aurelian as a great story, starting as a struggling miner drilling for gold in Ecuador amid industry skepticism. “It happens only once every generation a discovery as big as this. It would be one of the majors that could cope with the political risks in Ecuador. They could handle that.”

Industry sources said Aurelian is increasingly becoming a sweet spot for Barrick, Newmont and even Yamana Gold, all of which have significant exposure in South America.

Asked about Aurelian as a takeout candidate, a spokesperson for Barrick said his company will have to wait and see how the mining constitution will be drawn up in Ecuador. But he maintained if generally the right opportunity came along at the right time at a fair price, then the company would certainly consider it.

A Newmont spokesperson noted that Aurelian quite possibly could be the next industry target but also commented that he did not know where it stood with its development in Ecuador. One step in the right direction came on Monday, as the Ecuadorean president was reported to have proposed forming a new constitutional court. The new top court should “guarantee the necessary and efficient separation of all the powers of the state,” Correa said in a speech.

Aurelian has even plucked the interest of other large industry players, such as NovaGold Resources and Kinross Gold. Despite acknowledging the asset, Rick Van Nieuwenhuyse, president and CEO of NovaGold, noted that his company’s strategy is to look at assets that are in production or near production and therefore Aurelian would be too early stage. In addition, he said NovaGold has a primary emphasis on North American production.

Kinross’ president and CEO, Tye Burt, described Aurelian as being a great deal with excellent drill holes, but noted that the total market cap of approximately USD 1bn is probably too large for their budget this year. He added that Kinross’ exploration budget for 2007 is USD 55m.

However, as more industry sources claim that Barrick and Newmont are vying an interest in Aurelian, the main challenges that could face buyers for the company are two-fold, noted an industry banker. He commented that the first challenge would be placing an acquisition price on Aurelian, which is already trading at a three-month high of CAD 9.08 (USD 9.30).

A person who represents one of Aurelian’s largest shareholders said, according to current market transactions, such as Yamana’s merger with Meridian Gold and the recently proposed acquisition of Miramar Mining by Newmont, premiums vary between 25% and 40%.

The second challenge, said the industry banker, is until the cloud of the government interference is lifted in Ecuador, potential buyers are going to be reluctant to want to put a lot of money into these assets due to nationalization risk.

Among the mining community, Ecuador is regarded as a country that has not so much encouraged mining but rather taken a hard stance against it. One industry executive familiar with Aurelian said all eyes will be watching the country’s constitutional assembly. Until that constitution assembly resolves the relationship between the private sector and resources, any merger prospects will be stalled, the executive commented. But again he reasserted that FDN is a world class discovery and “world class discoveries create a lot of interest: one you are so rare and two because the successful development turns out to be a transformational event for the company that does the acquisition.”

Correa has said the assembly is necessary to eliminate the power of traditional political parties, which he blames for the country’s instability and corruption.

The person who represents one of Aurelian’s largest shareholders said it was his hope that the constitution will be written up favorably and will pave the way for large companies such as Newmont and Barrick to enter Ecuador. The constitution will reassure the majors as well as Aurelian of rules and regulations related to tax rates and royalties on mines. Still, there is no set timeframe for when the constitution will be completed.

With continued political uncertainty in Ecuador, the fund head agreed that there is less chance of one of the majors being willing to do a deal with Aurelian for the time being. However, she did note that the sector is starting to witness more mining companies taking each other out far earlier than was previously seen. She said buyers would traditionally wait until the target would receive all permits and resolve environmental issues ahead of making such an acquisition.

She added, regardless, that Aurelian will eventually be bought by one of the majors. “It’s like when suddenly someone becomes serious about it they all move in. Something has to happen to put buyers under pressure. I am actually surprised. I think the founders [of Aurelian] are probably surprised as well.”

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