I just sat down to read the board after a relaxing holiday break. It certainly was an active week of posting, and on the markets. A family squabble amongst the mates (always seems to happen when everyone is home for Christmas :), the captain is back at the helm, a couple of lurkers emerge to add a lot of value, Gold is over $660, Oil cracked $100, ARU back up over $8 lots of great information postings and everyone wishing they had dug out a bit of extra powder and loaded up at $6.70.

Now if Aurelian management keeps their December’s pre-New Year’s resolution we should be seeing a press release next week. We have a lot of pending assays out on deep FDN holes, Papaya, some down on Bonanza and who knows where else they were drilling.

A couple of notes on the numbers that people might want to think about while doing their ‘back of napkin’ estimates.

From table 17.7 on page 116 of the final 'FDN Mineral Resource Report' we know we have 59 million tonnes grading 7.42g/t AU equivalent with a 2.3 g/t cut-off based on $550 gold. With the additional holes at depth, the widening of the central portion of the deposit with previously released results and drilling to the south that will probably connect FDN and Bonanza the FDN resources estimate is clearly out of date. 14 million contained AUeq ounces was very conservative when published and by my estimates we are in the 20s.

From page 115 and 116 …. “A 2.3 g/t Au Eq cut-off would represent approximately US$37 per tonne cost ($24/t mining and back filling + $11.50/t processing +$1.50/t general and administrative, G&A) contained gold content (at a price of US$550/oz) and, at reasonable process recoveries, should render enough cash flow to approximately cover the cash costs of production.” --- As the price of gold goes up you can use a lower cutoff grade and mining costs per tonne for the deposit drops some because you can mine more of the deposit without working around what would have been waste. At the same time the grade of the ore drops as you include more low grade material. So you recover more gold but it costs more per ounce to recover.

Looking at a couple of recent gold mine developments I guestimate that the Capital Costs for a 10,000 t/day operation (my guess on the mine size) would be around $225-$250 million depending on ability to access electricity from a grid. That’s about $12/ounce of capital investment for a 20 million ounce deposit. 5% mining royalties (assume the worst – it seems we should get used to that) at $860 gold will be about $43/oz

So all in we are looking at estimated mining costs and processing costs of $172/ounce equivalent (1 recovered ounce equals 4.66 tonnes of ore at 7.42 g/t at 90% recovery), capital costs of around $12/tonne (I’m guessing since I don’t have a clue as to what the depreciation schedule for mining is in Ecuador and just use straight line over 17 years) and royalties of $43/oz. So anything above $228/ounce will be the margin subject to tax less whatever carried tax losses we have from previous exploration expenditures. THERE ARE VERY FEW MINES IN THE WORLD THAT OPERATE AT $228/OZ ALL IN. FDN as it stands is going to be a very profitable mine. Expansion of the mine and new discoveries is just going to make it that much better,

At $860 gold that a rough pre-tax margin of $630/ounce. At 10,000 t/day that’s about 700,000 ounces a year (assuming about 10% non-productive time). So pay the government their 30% taxes (We will find out some time in the next couple of months what the actual rate will be in Ecuador) and they get their $190/oz and we are looking at $440/ounce profit.

Now maybe I’m out to lunch but if my numbers are at all reasonable that about $133 million in taxes for them and about $308 million for us per year on a 17 year mine life. Remember that combined all their proposed tax changes are only suppose to add $300 million a year. FDN alone could contribute over a third of their targeted amount before any windfall tax.

I too am concerned with the windfall tax but we don’t have enough information yet to figure it out. Worse case scenario (so far) is they take 70% above the base. But add to the mix some savvy management to negotiate a great deal, a few smart accountants to play just inside the park, a tax lawyer to find the holes in the agreement, another change in government and before you know it the windfall tax is manageable.

Just something to think as the price of gold moves towards $900/oz (less than a 10% move to go).