The following is an excerpt from a post by Otto Rock, owner of the Inca Kola News.
http://incakolanews.blogspot.com

The original article is here:
http://incakolanews.blogspot.com/200...

Since we have a bunch of new members, plus a much wider readership now, I want to repost this so that anyone who missed it the first time has an opportunity to study it. It presents an alternate plan to the Kinross offer, and in so doing, reveals exactly how inadequate that offer is.

ebear

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So therefore the best way to combat the bad management decision that puts the company at serious and imminent risk of being sold at a fraction of its value is to get rid of the managers who made that call.

Here's how I propose it can be done:

1) Find a core body of large shareholders who will oppose the deal. If you go to the well-informed ARU bullboard at agoracom you will see two names that hold between them perhaps 25m shares of ARU mentioned. There are more of these large institutional holders, but a core defence committee needs its seeders. As much as retail holders may not like the decisions made, they don't hold enough weight amongst themselves to make a difference. A big hitter or two on your team is 100% necessary.

2) Propose a new board of directors slate, with George Bee (current COO of Aurelian) as the new CEO. George Bee must be pretty miffed with his own boss right now, as part of his remuneration package is 1,000,000 options with a strike price of $8. As things stand, Mr Bee is not going to see the millionaire compensation package he had every right to envisage when he came on board, and it is perfectly possible that his options turn out to be worthless, all due to this terrible decision taken by his BoD. George Bee is a world class minebuilder and now knows the FDN project better than just about anyone else in the world. He would be the perfect replacement for those who have sold out to the first offer and could see Aurelian move from junior begging to be sold to a real live mid-tier producing gold miner with all bells and whistles attached

3) As part of the alternative slate, offer 50% of Aurelian Resources shares to the government of Ecuador in return for 100% of the construction costs needed to take ARU to production. At this present time, let's assume (for argument's sake) the company needs $600m to get to commissioning day one. This would value that 50% of ARU at the same supposed $8.30 level as the Kinross offer and some 20% higher than today's share price. However it would bring several important advantages.

* With the state of Ecuador as equal partner, political risk dissolves to zero.

* No more share dilution is needed to bring to project to production.

* Production is shared equally (in this post I ballparked 1m oz Au per annum as a likely target production).

* Ecuador would be able to put 500,000oz of gold per annum into its own bank reserves, effectively paying $350/oz (my own conservative estimate cash cost) per ounce and getting itself an excellent bargain. The country's finances would be substantially strengthened by such a policy.

As for those production numbers, things would change if Ecuador holds 50% of the company. With Aurelian's share at 500,000 ounces of gold, here are a few very very ballpark numbers:

Production due to Aurelian: 500,000 oz

Cash Cost per oz : $350. Please note I am assuming a far greater cash cost per ounce than current 43-101 reported estimates, simply to be on the conservative side.

Gross profit at different gold prices:
@ $850/oz = $250m
@ $900/oz = $275m
@ $950/oz = $300m
@ $1000/oz = $325m
@ $1050/oz = $350m
@ $1100/oz = $375m

With total state burden assumed at 50% (including income tax at 25%, royalties, worker's participation taxes etc etc) and taking $950/oz gold as my benchmark, Net earnings per annum can be estimated at $162.5m. With current PPS dilution, this would give us a projected EPS of $1.10. With large producing miners currently valued at multiples of between 11X and 20X, by choosing a PE ratio at the low end of that scale...say 12X...This would project to a forward valuation of $13. Note that if the market decides ARU deserves a higher multiple, or if gold continues its march higher, that $13 would be left way behind.

It should be remembered after reading all these back of envelope figures that FDN is only one asset held by ARU, and the company controls many other promising gold and copper targets.

The 50% dilution of the company is, of course, not the best of possible situations. But the benefits it brings outweigh the costs, and certainly provide ARU with a valuation much better than that of its shrinking violet of a CEO currently in charge. It should certainly be a loud wake up call for any institutional shareholder to realize that you can give away half the company and still get a far better deal than that offered by Patrick Anderson. The company has a fiduciary obligation to maximize shareholder value. My proposal is therefore to rid the company of its current CEO and board of directors who have become an obvious liability to said shareholders, replace them with a man who has unbeatable ability to build the mine in question and add the country of Ecuador as JV partner to provide construction costs and the most solid of answers to any question about political risk.

I hope a large shareholder or institution with a block holding of Aurelian Resources reads this post. You don't have to believe every word, as long as it piques your interest. DYODD. You have alternatives, and do not have to accept this bid or the slightly sweetened one to come.

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