AURIZON REPORTS THIRD QUARTER 2010 RESULTS
Shares Listed: Toronto Stock Exchange - Ticker Symbol - ARZNYSE Amex: - Ticker Symbol - AZK U.S. Registration: (File 001-31893) News Release Issue # 32 - 2010
VANCOUVER, Nov. 3 /PRNewswire-FirstCall/ - Aurizon reports financial results for the third quarter of 2010, which have been prepared on the basis of available information up to November 1, 2010. Management's Discussion and Analysis should be read in conjunction with the most recent audited annual financial statements of the Company.
The third quarter of 2010 was highlighted by the following:
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- Cash flow from operations of $7.1 million.
- Gold production of 29,905 ounces.
- Net earnings of $2.4 million, or $0.02 per share.
- Total cash costs of US$604 per ounce(1) and operating margins of
US$515 per ounce.
- $131 million in cash; working capital of $131.5 million, and no debt.
- Final delivery of remaining gold call options.
- Additional metallurgical tests initiated at Joanna - feasibility
study targeted for mid-2011.
- High grade mineralization discovered in 123 Zone at Casa Berardi.
- Initial drill results at Fayolle confirm geological model.
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From the President and Chief Executive Officer, David Hall
"Although the third quarter operational results at Casa Berardi were below expectations, we are confident that the operational issues experienced will be resolved." said David Hall, President and Chief Executive Officer. "Furthermore, as we move from a lower grade mining sequence to one that is more reflective of overall average underground reserve grades, we expect improved operational performance going forward", he added. "The Company is now totally un-hedged and poised to participate fully in the prevailing bull market for gold. In addition, Aurizon's strategic assembly of properties, at various stages of development, has further complemented Aurizon's asset base and should provide a strong pipeline of projects for future growth."
FINANCIAL RESULTS
Third Quarter 2010
Net earnings of $2.4 million, or $0.02 per share, were achieved in the third quarter of 2010 compared to net earnings of $8.2 million, or $0.05 per share, for the same quarter of 2009. Third quarter results were impacted by operational challenges at Casa Berardi together with the anticipated sequencing of lower than average ore grades.
Operating profit margins decreased to US$515(2) per ounce compared to US$537 per ounce in the same quarter of 2009, primarily due to lower ore grades and a stronger Canadian dollar, partially offset by higher realized gold prices. In addition, a significant increase in exploration activities at Aurizon's newly optioned properties, together with continued exploration and feasibility work at Joanna, resulted in $5.5 million of exploration expenditures being charged to earnings in the third quarter of 2010, compared to $0.7 million in the same quarter of 2009.
After removing the positive impact of non-cash unrealized derivative gains of $2.9 million, on an after tax basis, the adjusted net loss was $0.5 million, or ($ nil) per share, compared to adjusted net earnings of $7.7 million, or $0.05 per share, in the same quarter of 2009. In the third quarter of 2009, earnings were positively impacted by non-cash unrealized derivative gains of $0.5 million, on an after tax basis.
Revenue for the quarter from Casa Berardi operations declined to $39.9 million from the sale of 30,755 ounces of gold, compared to $45.5 million from the sale of 43,650 ounces of gold in the same quarter of 2009. Net of realized derivative losses, revenues were $35.9 million compared to $44.2 million in the same quarter of 2009. After adjusting for the impact of net derivative losses, the average realized gold price was US$1,119 per ounce, and the average Cad/US exchange rate was 1.04, compared to realized prices of US$929 per ounce and an average exchange rate of 1.10 in the same quarter of 2009.
As at September 30, 2010, the Company has no gold hedges. Effective October 1, 2010, 100% of the Company's gold production will be sold at prevailing spot prices, allowing the Company to benefit fully from prevailing strong gold prices. During the third quarter of 2010, 60% of the gold sales were delivered against gold call options at an average price of US$915 per ounce, 25% lower than the average London fixing of US$1,227 per ounce. In the same quarter of 2009, 46% of the gold sales were delivered against gold call options at an average price of US$886 per ounce. Partially offsetting this opportunity cost, the Company exercised 5,358 ounces of gold call options at US$863 per ounce that were purchased in 2009 and then sold the gold at an average price of US$1,229 per ounce during the third quarter 2010. The Company did not have any purchased call options maturing in 2009.
Operating costs in the third quarter of 2010 totalled $19.5 million, 2.5% higher than the same period last year, primarily as a result of increased repairs and maintenance and higher material handling costs, which combined with the anticipated lower ore grades, resulted in total cash costs per ounce of gold sold of US$604(2) compared to US$392 per ounce in the same period of 2009.
Depletion, depreciation and accretion charges ("DD&A") decreased to $8.1 million in the third quarter of 2010 compared to $10.1 million in the same period of 2009 as a result of lower gold sales in the current reporting period. On a unit basis, DD&A amortization was US$254 per ounce, up from US$212 per ounce in the same period of 2009 due to the impact of prior and current year capital expenditures.
Administrative and general costs in the third quarter of 2010 rose to $2.9 million from $2.3 million in the same period of 2009, as a result of increased staffing in both the corporate office in Vancouver and the operations office in Val d'Or. Included in these costs are stock based compensation charges totalling $0.8 million in the third quarter of 2010 compared to $0.5 million in the same period last year.
A significant increase in exploration activities resulted in $5.5 million of exploration expenditures (net of $1.7 million of tax credits) being charged to earnings in the third quarter of 2010 compared to $0.7 million in the same quarter of 2009. The main focus in the third quarter of 2010 was the ongoing feasibility study and continued exploration at Joanna where $3.6 million was incurred. Other active exploration programs included Rex South ($1.6 million); Kipawa ($0.6 million); Fayolle ($0.4 million); and Marban ($0.4 million).
Income and resource taxes totalled $2.4 million in the third quarter of 2010; of which $1.4 million are current federal income taxes; $0.7 million are Quebec resource taxes; and $0.3 million are future income taxes. No cash outlay is required for the current federal tax expense as the Company has $7.8 million of non-refundable tax credits to shelter any taxes owing. The future income taxes are a result of temporary differences between the tax and accounting bases of the Company's assets and liabilities.
Cash flow from operating activities in the third quarter of 2010 was $7.1 million compared to cash flow of $17.6 million in the same period of 2009. The decrease in cash flow is primarily related to lower gold production and sales, as well as increased exploration and feasibility related activities.
Investing activities totalled $6.7 million in the third quarter of 2010, of which $4.2 million was on sustaining capital and development at Casa Berardi, and $2.3 million was on exploration activity at Casa Berardi.
Included in financing activities are proceeds from the exercise of incentive stock options and repayment of government assistance during the third quarter of 2010 which resulted in a net cash inflow of $6.2 million. In the same period of 2009, the repayment of project debt totalling $21.0 million, less cash inflows of $0.4 million from the exercise of incentive stock options, resulted in a net cash outflow of $20.6 million.
Nine Months 2010
Net earnings for the nine months ended September 30, 2010, were $9.9 million, or $0.06 per share, compared to $26.8 million or $0.17 per share in the same period of 2009. Operating results were adversely impacted by the planned sequencing of lower than average ore grades, operational challenges in the third quarter, and a strong Canadian dollar. In addition, the significant increase in exploration and feasibility related activities, together with higher non-cash stock based compensation charges negatively impacted results. After removing the positive impact of non-cash unrealized derivative gains, on an after tax basis, of $6.1 million and $10.1 million in the first nine months of 2010 and 2009 respectively, earnings were $3.8 million, or $0.02 per share, compared to adjusted earnings in the same period of 2009 of $16.8 million or $0.11 per share.
Cash flows from operating activities in the first nine months of 2010 totalled $32.8 million, compared to cash flows of $59.8 million for the same period of 2009. Cash flow was adversely impacted by lower earnings and movements in non-cash working capital items compared to the same period of 2009. The operating profit margin for the nine month period increased to US$525(3) per ounce, compared to US$521 per ounce in the same period of 2009 due to higher gold prices partially offset by higher operating costs.
Investing activities in the first nine months of 2010 totalled $22.6 million, of which $21.8 million was incurred on sustaining capital and exploration expenditures at Casa Berardi and $0.8 million was incurred for property acquisition costs and related marketable securities. In the same period of 2009, investing activities totalled $7.1 million, which comprise $29.0 million incurred on capital and exploration expenditures; $2.6 for the purchase of the gold call options that expire in 2010; offset by cash inflows generated from the release of the restricted cash balances totalling $21.2 million; and $3.3 million from refundable tax credits.
Financing activities during the first nine months of 2010 resulted in a net cash inflow of $7.7 million as a result of incentive stock option exercises, reduced by the repayment of government assistance of $0.6 million. In the same period of 2009, financing activities resulted in a net cash inflow of $20.9 million as a result of a $47.3 million equity financing and $3.4 million from the exercise of incentive stock options, reduced by principal debt repayments of $29.2 million and a $0.6 million repayment of government assistance.
CASH RESOURCES AND LIQUIDITY
As at September 30, 2010, cash and cash equivalents increased to $130.9 million, compared to $113.1 million as at December 31, 2009. Working capital at the end of the current reporting period increased to $131.5 million, compared to $101.7 million at the end of 2009. The increase in cash and cash equivalents was primarily attributable to cash flows generated from Casa Berardi's mining operations.
Aurizon continued to have no debt as at September 30, 2010.
CASA BERARDI
Operations
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YTD
2010 Q3 2010 Q2 2010
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Operating results
Tonnes milled 531,048 169,913 182,487
Grade - grams/tonne 6.73 6.15 7.20
Mill recoveries - % 90.2% 89.07% 91.2%
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Gold production - ounces 103,620 29,905 38,527
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Gold sold - ounces 105,142 30,755 39,964
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Per ounce data - US$(4)
Average realized gold price(i) $1,069 $1,119 $1,082
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Total cash costs(ii) $544 $604 $504
Amortization(iii) 240 254 240
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Total production costs(iv) $784 $858 $744
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Bank of Canada exchange rate - Cad/US dollar 1.036 1.039 1.028
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Q1 2010 Q4 2009 Q3 2009
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Operating results
Tonnes milled 178,648 172,343 178,420
Grade - grams/tonne 6.79 7.16 8.14
Mill recoveries - % 90.2% 91.9% 94.2%
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Gold production - ounces 35,188 36,459 43,962
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Gold sold - ounces 34,423 36,183 43,650
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Per ounce data - US$(4)
Average realized gold price(i) $1,010 $946 $929
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Total cash costs(ii) $538 $459 $392
Amortization(iii) 228 224 212
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Total production costs(iv) $766 $683 $604
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Bank of Canada exchange rate - Cad/US dollar 1.041 1.056 1.097
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Table footnotes(4):
(i) Realized gold prices net of realized derivative gains or losses
divided by ounces sold.
(ii) Operating costs net of by-product credits, divided by ounces sold,
and divided by the average Bank of Canada Cad$/US$ rate.
(iii) Depreciation, amortization and accretion expenses.
(iv) Total cash costs plus depreciation, amortization and accretion
expenses.
Gold production for the third quarter of 2010 totalled 29,905 ounces from the processing of 169,913 tonnes at an average grade of 6.15 grams of gold per tonne. Mill recoveries declined by 2% over the second quarter of 2010 to 89% as a result of lower ore grades. This compares to ore grades of 8.1 grams of gold per tonne and recoveries of 94.2% in the same quarter of 2009.
Challenging ground conditions in a localized area of Zone 113 resulted in changes to the mining sequencing, which adversely impacted expected ore grades. Additionally, as a result of the reduced availability of underground mining equipment due to mechanical issues, daily ore throughput decreased to 1,847 tonnes per day in the third quarter of 2010, compared to 2,005 tonnes per day in the second quarter of 2010 and 1,939 tonnes per day in the third quarter of 2009. An independent study of maintenance practices and an evaluation of equipment replacement has been initiated to address this issue. Additional mining equipment was acquired in October 2010 to improve productivity.
The anticipated sequencing of lower grade ore in 2010, together with lower mill recoveries and a strong Canadian dollar, resulted in total cash costs of US$604 per ounce in the third quarter of 2010, compared to US$392 in the same quarter of 2009. The higher total cash costs per ounce were primarily due to lower ore grades, as well as higher unit mining costs, and a strengthening Canadian dollar. Unit operating costs(5) on a Canadian dollar per tonne basis were $112 per tonne during the third quarter of 2010, compared to costs of $103 per tonne in the same quarter of 2009. The operating profit margin(4) in the third quarter of 2010 decreased to US$515 per ounce compared to US$537 per ounce in the same quarter of 2009, primarily due to lower ore grades, partially offset by higher realized gold prices.
Modifications to the stope design of the Lower Inter Zone in late 2009 have resulted in mining a larger mineralized envelope containing lower grade ore. Approximately 43% of 2010 production will come from this Zone. Higher ore grades are anticipated in 2011 as more areas containing underground reserve grade material that average approximately 8 grams per tonne are included in the mine plan, which is expected to result in higher gold production and lower total cash costs per ounce.
Casa Berardi Exploration
In the third quarter of 2010, two surface drill rigs and seven underground drill rigs were active at Casa Berardi. The exploration focus during the third quarter was on the upper and depth extensions of the 123 Zone, located approximately 1.0 kilometre east of the West Mine shaft, with the objective of extending the known mineralization. As at December 31, 2009, the 123 Zone contained inferred mineral resources of 714,000 tonnes at a grade of 9.4 grams of gold per tonne, or 216,000 ounces. Gold mineralization in the 123 Zone occurs in quartz veins, cherty units and massive sulphide structures located between the South 123 Zone Break to the east and the South Break to the west in a volcanic bearing environment. This corridor extends for more than 1.0 kilometre vertically, containing distinct stacked lenses. The thickness of the individual lenses within the corridor is in the range of 3 to 35 metres.
Recent drilling from the exploration drift on the 810 metre level indicate that there is a high grade core within the 123 Zone, extending over a strike distance in the order of 200 metres vertically by 50 metres horizontally and having an approximate thickness of 25 metres. The best results were 42.1 grams of gold per tonne over 21.5 metres; 10.0 grams of gold per tonne over 35.1 metres; and 9.1 grams of gold per tonne over 27.3 metres. The deepest hole to date in the 123 Zone is at 1,100 metres which intersected two structures: 5.5 grams of gold per tonne over 10 metres (true thickness) and 20.7 grams of gold per tonne over 0.7 metres (true thickness).
OTHER PROPERTIES
Joanna Gold Development Property
During the third quarter of 2010, feasibility study work continued with larger scale metallurgical test work on the Albion process, which we expected to be used to treat the Hosco ore at Joanna. The test work completed to date indicates that the estimated overall gold recoveries, utilizing the Albion process, would be 85.1%, compared to 86.8% estimated in the pre-feasibility study, with increased consumption of cyanide, oxygen and acid. These factors would have an adverse impact on operating costs.
For these reasons, while the Albion process is an acceptable choice for the Joanna project, the Company has decided to evaluate three alternative recovery processes, including the use of an autoclave, whilst continuing to review potential improvements to the Albion process. As a result of the additional metallurgical test work, completion of the Feasibility Study has been delayed until mid 2011.
Other aspects of the Feasibility Study are proceeding according to plan. Pit optimization modelling is progressing well and feasibility level engineering of the grinding, gravity, and floatation circuits is essentially complete. Geotechnical and hydrological studies have been received. The environmental impact study is well underway without any major issues being identified.
Drilling continues to test the potential of the Joanna project, particularly the area between the Hosco and satellite pits identified in the Pre-Feasibility Study.
Kipawa Gold Property
A 6,550 metre drill program, comprising 25 drill holes, has recently been completed to test gold targets identified from prior field activities. Drill results from this program are presently being compiled and results are expected shortly.
Fayolle Property
During the third quarter of 2010, 4,648 metres of drilling was completed as part of a 15,000 metre program aimed to test a new geological model on the Fayolle gold deposit and to explore the entire deformation corridor transecting the property along a strike length of more than 2 kilometres, for which costs totalling $0.4 million were incurred during the third quarter. As at the end of the third quarter 2010, fourteen drill holes have been completed on a 50 metre drill spacing to test the continuity and grade of the mineralized zones. Drill results and associated geological interpretations were received for the first four holes, the best result returning 112.50 grams per tonne of gold over 6.0 metres. These initial holes appear to confirm the new model with improved continuity between mineralized zones. The current exploration program includes two drill rigs concentrating on two targets: down dip extensions of the known Fayolle deposit resource outline, and generating and testing other targets using already defined geological controls.
Aurizon may earn up to a 65% interest in the Fayolle Property, comprising 39 mining claims covering 1,373 hectares across the Porcupine-Destor Break, one of the most productive gold bearing structures of the Abitibi Belt. The Fayolle Property is situated 10 kilometres north of Aurizon's Joanna Project in north-western Quebec.
Rex South Property
At Rex South, $1.6 million was incurred in the third quarter 2010 on an exploration program comprising: 5,410 line-kilometres of airborne magnetic and spectrometric geophysical surveys, a lake bottom sediment geochemical survey comprising 765 samples, and surface prospecting which included the collection of 1,160 rock grab samples.
Aurizon may earn up to a 65% interest in the Rex South Property comprising 1,274 claims covering a surface area of 555 square kilometres, about 145 kilometres southeast of the community of Puvirnituq in northern Quebec. The Rex South property hosts strong exploration potential based on extensive geochemical anomalies, geophysical signatures, and the presence of several mineralized prospects including high-grade gold and copper values obtained by grab samples.
Marban Block Property
During the third quarter of 2010, Aurizon initiated a $5.8 million exploration program comprising 50,000 metres of drilling to test the lateral and depth extensions of the existing mineral resources, of which $0.4 million was spent in the third quarter. Two drill rigs are active on the property and a third rig may be added later in the program.
Aurizon may earn up to a 65% interest in forty-two mining claims and three mining concessions covering 976 hectares in the heart of the Malartic gold mining camp in the Abitibi region of Quebec, subject to underlying royalties. The Marban block covers 3 kilometres of a 500 metre wide favourable gold bearing shear zone punctuated by historic production, current mineral resources and exploration potential. Underground potential can be projected by following down dip extensions, similar to other deposits in the Abitibi area. The first phase of Aurizon's involvement on the project will focus on additional drilling to extend resources potentially mineable by open pit.
Duverny Property
At Duverny, an initial $0.5 million exploration program comprising an airborne magnetic survey and surface prospecting commenced, of which $0.15 million was incurred during the third quarter.
Aurizon may earn a 100% interest in 14 mineral claims covering 2,700 hectares, 25 kilometres northeast of Amos, Quebec, subject to underlying royalties. An additional 87 claims surrounding the property have been staked, subject to acceptance by Provincial authorities. The Duverny Property covers part of a mafic volcanic belt associated with the Chicobi fault corridor. Gold mineralization indicators in this area have similarities to the Timmins context, such as carbonate saturation and the presence of extensive quartz vein systems associated with folded structures.
Opinaca-Wildcat Properties
Consistent with Aurizon's strategy of assembling a portfolio of exploration properties at various stages of development to provide a strong pipeline for future growth, agreements have been entered into that allow Aurizon to earn up to a 60% interest in the Opinaca Property, comprising 649 mineral claims covering 338 square kilometres, and up to a 65% interest in the Wildcat Property, comprising 411 mineral claims covering 214 square kilometres. Both properties are situated in the James Bay area, 350 kilometres north of Matagami, Quebec and in close proximity to Goldcorp's Eleonore project.
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(1) See "Non-GAAP measures on page 9.
(2) See "Non-GAAP measures on page 9.
(3) See "Non-GAAP measures on page 8.
(4) See "Non-GAAP measures on page 8.
(5) See "Non-GAAP measures on page 8.
OUTLOOK
With cash balances of $131 million and no debt as at September 30, 2010, Aurizon intends to utilize its strong operating cash flows and balance sheet to continue upgrading its mineral resources to mineral reserves at both Casa Berardi and Joanna and to aggressively explore its new portfolio of exploration properties in Quebec.
The fundamentals for gold remain very strong as the US adopts further quantitative easing measures to combat uncertainties regarding the sustainability of their economic recovery. These measures will likely allow US real interest rates to remain low, which is supportive of gold prices. Continued sovereign debt issues in Europe remain and against this backdrop of uncertainty, central bank and investment buying of gold bullion appears to be strong. Looking at the currency risks, the Canadian dollar is strengthening closer to parity against the US dollar as strong commodity prices and Canada's sound fiscal and economic fundamentals attract foreign capital flows. However, further strengthening of the Canadian dollar should be more than compensated by higher gold prices that reflect a weaker US dollar.
As previously announced, based upon results for the first nine months and the revised mine plan for the balance of 2010, Casa Berardi production guidance has been lowered to 140,000 - 145,000 ounces, compared to previous guidance of 145,000 - 155,000 ounces of gold. Total cash costs for the full year are now estimated at approximately US$535 per ounce, assuming a Canadian dollar exchange rate of 1.01 against the US dollar for the balance of the year, compared to previous guidance of US$500 per ounce at an exchange rate of 1.03.
Beginning in 2011 through 2013, annual gold production of 160,000 to 170,000 ounces is anticipated at total cash costs approximating US$450 per ounce, as the mine plan includes more areas containing material with the average underground reserve grade of approximately 8 grams of gold per tonne. It is anticipated that future mine plans will incorporate the results of the extensive drill programs currently in progress.
On-site mining, milling and administrative costs are expected to average $110 per tonne in the fourth quarter of 2010. Fourth quarter average daily mine production is estimated at 2,050 tonnes per day at an average grade of 7.0 grams per tonne.
Sustaining capital expenditures at Casa Berardi for the fourth quarter of 2010 are estimated to be $10.5 million and will include development of the upper and lower portions of Zone 113, as well as development to access Zones 115 and 118. Also included in this amount are underground infrastructure additions, equipment replacement, and tailings pond construction. As previously reported, $2.3 million of the $10.5 million will be invested in the fourth quarter 2010 commencing a ramp from the 810 metre level down to approximately the 1,000 metre level which will provide drill bases to test the depth extensions of both the 123 and 118 Zones as well as commence mine development of these zones. A further $2.8 million will be invested on exploration in the fourth quarter of 2010.
In addition, the Board of Directors approved the deepening of the West Mine production shaft a further 320 metres to provide access to the lower portion of the 118 and 123 Zones. The shaft, currently at a depth of 760 metres, will be extended to approximately 1,080 metres below surface. This will provide a drift access at the 1,010 metre level from these zones to the shaft. The estimated cost of the shaft deepening, drift access to the 118 and 123 zones, and related infrastructure is approximately $32 million and is expected to start in early 2011 and be completed at the end of the third quarter of 2012.
At Casa Berardi, an updated resource estimate for the Principal Area was completed in October that resulted in a 94% increase of the in-pit measured and indicated gold resources to 5,435,000 tonnes at an average grade of 4.02 grams per tonne, or 690,000 ounces of gold. Outside of the open pit contour, there are further measured and indicated resources totalling 719,000 tonnes at an average grade of 6.99 grams per tonne, or 162,000 ounces of gold. The updated resource block model for the Principal Area is being used in the prefeasibility study of an open pit mining operation, by BBA inc., Montreal, Quebec, which is expected by the end of the year. Additional surface drilling will be conducted during the winter to verify the extensions of the mineralized lenses in the Principal Area, which are open in all directions.
Elsewhere at Casa Berardi, underground drilling will continue with two rigs from the 810 metre exploration drift to define the down dip extensions of both the 118 and 123 Zones. The 123 Zone remains open to depth and along strike to the east; however, step out drilling is limited due to the orientation of the mineralization relative to the drill bases at the 810 metre exploration drift. The two drill rigs will primarily perform infill drilling of the 123 Zone in order to upgrade the resources identified in the campaign. An updated mineral resource estimate is expected to be completed by year-end.
The 600 metre extension of the 550 metre level exploration track drift was completed in October 2010 and now provides a drilling platform to verify the continuity between the Principal Area and the 118, 120 and 123 Zones. Another drill will continue to be active on the 810 metre level exploration drift delineating the 113(deep) and 113(S4) Zones. Surface exploration drilling programs at both the East and West Mine are continuing to evaluate the extension of existing zones and to test new interpolated targets.
At Joanna, an additional $5.1 million exploration program comprising 44,000 metres of drilling utilising two to four drill rigs, was initiated in July 2010, of which approximately $4.0 million will be incurred in the fourth quarter 2010. These rigs will perform exploration and infill drilling on surface targets covering various extensions of the Hosco deposit, the Alexandria property and the Heva deposit. Approximately $2.0 million will be incurred in the fourth quarter to conduct additional metallurgical test work and various other studies currently in progress related to the feasibility study, which is anticipated to be completed in mid 2011.
At Marban, approximately $1.4 million will be incurred in the fourth quarter as part of the 50,000 metre drill program to test the lateral and depth extensions of the existing mineral resources. Two drill rigs are active on the property and a third rig may be added later in the program.
At Fayolle, approximately $1.2 million will be incurred in the fourth quarter as part of the 14,000 metre drill program to test two targets: the down dip extensions of the known Fayolle deposit resource outline, and other targets using already defined geological controls.
At Rex South, minimal costs will be incurred in the fourth quarter as the field work was substantially completed at the end of September 2010. Results from the summer program are expected in the fourth quarter.
At Duverny, approximately $0.1 million is expected to be incurred in the fourth quarter as part of a $0.5 million exploration program comprising an airborne magnetic survey and surface prospecting.
Aurizon continues to evaluate various opportunities, particularly in Quebec, where it can utilize its technical expertise and financial resources to create value, as it has done previously at both Casa Berardi and Joanna. The objective is to continue to assemble a portfolio of properties at various stages of development to complement Aurizon's current production and development base and to provide a strong pipeline of projects for future growth.
ADDITIONAL INFORMATION
Additional information about the Company's Casa Berardi Mine and Joanna Gold Development projects as required by NI 43-101, sections 3.2 and 3.3 and paragraphs 3.4 (a), (c) and (d) can be found in the Company's Annual Information Form for the year ended December 31, 2009, its news releases dated March 1, 2010 and July 5, 2010 and the latest Technical Reports on each project, copies of which can be found under Aurizon's profile on SEDAR at www.sedar.com and are also available on the Company's website at www.aurizon.com.
QUALIFIED PERSON AND QUALITY CONTROL
Information of a scientific or technical nature was prepared under the supervision of Martin Bergeron, P. Eng., Vice-President of Operations of Aurizon and a qualified person under National Instrument 43-101.
NON-GAAP MEASURES
Realized gold price per ounce of gold
Realized gold price per ounce of gold is a non-GAAP measure and is calculated by adjusting revenue for all realized gains and losses on gold derivative instruments and then dividing that by the gold ounces sold.
Unit mining costs per tonne
Unit mining costs per tonne is a non-GAAP measure and may not be comparable to data prepared by other gold producers. The Company believes that this generally accepted industry measure is a realistic indication of operating performance and is useful in allowing year over year comparisons. Unit mining costs per tonne is calculated by adjusting operating costs as shown in the Statement of Earnings for inventory adjustments and then dividing that by the tonnes processed through the mill.
Calculation of Adjusted Earnings
Adjusted net earnings are calculated by removing the gains and losses, net of income tax, from the mark-to-market revaluation of the Company's gold and foreign currency price protection contracts, as detailed in the table below. Adjusted net earnings do not constitute a measure recognized by generally accepted accounting principles (GAAP) in Canada or the United States, and do not have a standardized meaning defined by GAAP. The Company discloses this measure, which is based on its financial statements, to assist in the understanding of the Company's operating results and financial position.
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3rd 3rd Nine Nine
Quarter Quarter Months Months
2010 2009 2010 2009
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(in thousands of Canadian dollars,
except per share amounts)
Net earnings as reported $2,431 $8,211 $9,927 $26,844
Deduct the after-tax effect of:
Unrealized derivative gains (2,933) (560) (6,109) (10,065)
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Adjusted net (loss) earnings ($502) $7,651 $3,818 $16,779
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Adjusted net (loss) earnings
per share ($0.00) $0.05 $0.02 $0.11
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Total cash costs per ounce of gold
Aurizon has included a non-GAAP performance measure of total cash costs per ounce of gold in this report. Aurizon reports total cash costs on a sales basis. In the gold mining industry, this is a common performance measure but does not have any standardized meaning, and is a non-GAAP measure. The Company believes that, in addition to conventional measures prepared in accordance with GAAP, certain investors use this information to evaluate the Company's performance and ability to generate cash flow. Accordingly, it is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Total cash costs per gold ounce are derived from amounts included in the statements of earnings and include mine site operating costs such as mining, processing and administration, but exclude amortization, reclamation costs, financing costs and capital development costs. The costs included in the calculation of total cash costs per ounce of gold are reduced by silver by-product sales and then divided by gold ounces sold and the average Bank of Canada Cad$/US$ exchange rate.
Operating profit margin per ounce
Operating profit margin per ounce is a non-GAAP measure, and is calculated by subtracting the total cash costs per ounce from the average realized gold price. For the third quarter of 2010, the average realized gold price was US$1,119 less total cash costs of US$604, net of derivative losses, for an operating profit margin of US$515, compared to an average realized gold price of US$929 less total cash costs of US$392 for an operating profit margin of US$537 in the same quarter of 2009. For the first nine months of 2010, the average realized gold price was US$1,069 less total cash costs of US$544 for an operating profit margin of US$525, compared to an average realized gold price of US$906 less total cash costs of US$385 for an operating profit margin of US$521 in the same half of 2009.
OUTSTANDING SHARE DATA
As of November 1, 2010, Aurizon had 161,505,982 common shares issued and outstanding. In addition, 7,810,475 incentive stock options, representing 4.84% of outstanding share capital, are outstanding and exercisable into common shares at an average price of $4.19 per share.
Common Shares
(TSX - ARZ & NYSE Amex - AZK)
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September 30, December 31,
2010 2009
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Issued 161,363,482 159,008,607
Diluted 169,316,457 166,957,707
Weighted average 160,518,482 156,265,947
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CONFERENCE CALL AND WEBCAST
Aurizon management will host a conference call and live webcast on Thursday, November 4, 2010 at 8:00 a.m. Pacific Standard Time (11:00 a.m. Eastern Standard Time) to allow analysts and shareholders the opportunity to hear management discuss the Company's quarterly results. You may access the call by dialling into the Toll Free # at 1-877-407-8031 or the International # at 1-201-689-8031.
The call is being webcast by Vcall and can be accessed on Aurizon's website at www.aurizon.com or enter the following URL into your browser: www.investorcalendar.com/IC/CEPage.asp?ID=162119. Investors can also access the webcast at www.InvestorCalendar.com. Those who wish to listen to a recording of the conference call at a later time may do so by calling the Toll Free # at 1-877-660-6853 or International # at 1-201-612-7415 (Replay Passcodes: Account # 286 and Conference ID # 358998). A replay of the call will be available until Thursday, November 11, 2010.
FORWARD LOOKING STATEMENTS AND INFORMATION
This report contains "forward-looking statements" and "forward-looking information" within the meaning of applicable securities regulations in Canada and the United States (collectively, "forward-looking information"). The forward-looking information contained in this report is made as of the date of this report. Except as required under applicable securities legislation, the Company does not intend, and does not assume any obligation, to update this forward-looking information. Forward-looking information includes, but is not limited to, statements regarding the Company's expectations and estimates as to future gold production, anticipated rates of recovery, anticipated total cash cost per ounce of gold to be produced at the Casa Berardi Mine, currency exchange rates, the future price of gold and the effects thereof, the estimation of mineral reserves and mineral resources, the realization of mineral reserve and mineral resource estimates and the economic viability thereof, the timing and amount of estimated capital expenditures, costs and timing of the development of new deposits, plans and budgets for and expected timing and results of exploration activities and feasibility and pre-feasibility studies, permitting time-lines, evaluation of opportunities, requirements for additional capital, government regulation of mining operations, environmental risks, reclamation obligations and expenses, title disputes or claims, adequacy of insurance coverage, the availability of qualified labour, acquisition plans and strategies. Often, but not always, forward-looking information can be identified by the use of words such as "plans", "expects, "is expected", "budget", "scheduled", "estimates", forecasts", "intends", "anticipates", or "believes", or the negatives thereof or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might", or "will" be taken, occur or be achieved.
The forward-looking information contained in this report is based on certain assumptions that the Company believes are reasonable, including the exchange rates of the U.S. and Canadian currency in 2010, that the current price of and demand for gold will be sustained or will improve, the supply of gold will remain stable, that the current mill recovery rates at the Company's Casa Berardi Mine will continue, that the Company's current mine plan can be achieved, that the general business and economic conditions will not change in a material adverse manner, that financing will be available if and when needed on reasonable terms and that the Company will not experience any material accident, labour dispute, or failure of plant or equipment.
However, forward-looking information involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information. Such factors include, among others, the risk that actual results of exploration activities will be different than anticipated, that cost of labour, equipment or materials will increase more than expected, that the future price of gold will decline, that the Canadian dollar will strengthen against the U.S. dollar, that mineral reserves or mineral resources are not as estimated, that actual costs or actual results of reclamation activities are greater than expected; that changes in project parameters as plans continue to be refined may result in increased costs, of lower rates of production than expected, of unexpected variations in ore reserves, grade or recover rates, of failure of plant, equipment or processes to operate as anticipated, of accidents, labour disputes and other risks generally associated with mining, unanticipated delays in obtaining governmental approvals or financing or in the completion of development or construction activities, as well as those factors and other risks more fully described in Aurizon's Annual Information Form filed with the securities commission of all of the provinces and territories of Canada and in Aurizon's Annual Report on Form 40-F filed with the United States Securities and Exchange Commission, which are available on Sedar at www.sedar.com and on Edgar at www.sec.gov. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking information, there may be other factors that cause actions, events or results to not be as anticipated, estimated or intended. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Readers are cautioned not to place undue reliance on forward-looking information due to the inherent uncertainty thereof.
CAUTIONARY NOTE TO US READERS AND INVESTORS
As a British Columbia corporation, the Company is subject to certain rules and regulations issued by the British Columbia Securities Commission ("BC Securities Commission"). The Company is required to provide detailed information regarding its properties including mineralization, drilling, sampling and analysis, security of samples and mineral resource and mineral reserve estimates. Further, the Company describes mineral resources associated with its properties utilizing terminology such as "indicated" or "inferred" which terms are recognized by Canadian regulations but are not recognized by the United States Securities and Exchange Commission ("SEC").
Cautionary Note to U.S. Readers and Investors Regarding Mineral Resources
The SEC allows mining companies, in their filings with the SEC, to disclose only those mineral deposits they can economically and legally extract or produce. The Company may use certain terms in this document, such as "mineral resources", "indicated mineral resources" and "inferred mineral resources" that are recognized and mandated by Canadian securities regulators but are not recognized by the SEC.
This document may use the term "indicated" mineral resources. U.S. readers are cautioned that while that term is recognized and required by Canadian regulations, the SEC does not recognize it. U.S. readers and investors are cautioned not to assume that any part or all of mineral deposits in this category will ever be converted into mineral reserves.
This document may also use the term "inferred" mineral resources. U.S. readers are cautioned that while this term is recognized and required by Canadian regulations, the SEC does not recognize it. "Inferred resources" have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. U.S. readers and investors are cautioned not to assume that part or all of an inferred resource exists, or is economically or legally mineable.
Aurizon is a gold producer with a growth strategy focused on developing its existing projects in the Abitibi region of north-western Quebec, one of the world's most prolific gold and base metal regions, and by increasing its asset base through accretive transactions. Aurizon shares trade on the Toronto Stock Exchange under the symbol "ARZ" and on the NYSE Amex under the symbol "AZK". Additional information on Aurizon and its properties is available on Aurizon's website at www.aurizon.com.
Aurizon Mines Ltd.
Balance Sheets (Unaudited)
As at
September 30 December 31
(expressed in thousands of Canadian Dollars) 2010 2009
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ASSETS
Current assets
Cash and cash equivalents $ 130,933 $ 113,098
Marketable securities 933 -
Accounts receivable and prepaid expenses 5,072 4,825
Tax credits receivable 1,790 2,587
Advances 1,376 -
Derivative instrument assets 104 5,274
Inventories 9,970 11,897
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150,178 137,681
Non-current assets
Other assets 17,218 14,551
Property, plant and equipment 49,531 53,691
Mineral properties 118,854 117,370
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TOTAL ASSETS $ 335,781 $ 323,293
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LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 17,501 $ 16,451
Derivative instrument liabilities - 13,885
Current portion of long-term obligations 753 652
Current provincial resource taxes payable - 3,752
Current portion of future income tax liabilities 411 1,275
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18,665 36,015
Non-current liabilities
Long-term obligations - 705
Asset retirement obligations 22,592 21,816
Future income and resource tax liabilities 35,439 29,120
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TOTAL LIABILITIES 76,696 87,656
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SHAREHOLDERS' EQUITY
Share capital
Common shares issued - 161,363,482 (2009 -
159,008,607) 259,302 247,365
Contributed surplus 1,022 979
Stock based compensation 11,286 10,178
Deficit (12,958) (22,885)
Accumulated other comprehensive income 433 -
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TOTAL SHAREHOLDERS' EQUITY 259,085 235,637
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TOTAL EQUITY AND LIABILITIES $ 335,781 $ 323,293
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The attached notes form an integral part of these financial statements.
Signed on behalf of the Board,
(signed) (signed)
Andre Falzon, Richard Faucher,
Director, Chairman of Director, Audit Committee Member
the Audit Committee
Aurizon Mines Ltd.
Statements of Earnings (Unaudited)
(expressed in thousands of Three months ended Nine months ended
Canadian Dollars, except September 30 September 30
per share data) 2010 2009 2010 2009
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Revenue
Mining operations $ 39,882 $ 45,549 $ 130,184 $ 133,585
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Expenses
Operating 19,470 18,989 59,727 55,739
Depreciation, depletion
and accretion 8,104 10,147 26,115 27,940
Administrative and general 2,905 2,250 11,518 7,665
Exploration 5,471 729 10,271 2,699
Derivative losses (gains) (158) 667 4,317 (10,030)
Interest on long-term debt - 159 - 542
Foreign exchange (gain) loss (539) (427) (1,557) 2,388
Capital taxes 69 270 (418) 668
Other income (271) (151) (565) (605)
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35,051 32,633 109,408 87,006
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Earnings for the period
before income tax 4,831 12,916 20,776 46,579
Current income and
resource taxes (2,160) (2,101) (5,394) (6,518)
Future income and resource
taxes (240) (2,604) (5,455) (13,217)
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NET EARNINGS FOR THE
PERIOD $ 2,431 $ 8,211 $ 9,927 $ 26,844
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Weighted average number of
common shares outstanding
(thousands) 160,518 158,863 159,724 155,358
Earnings per share - Basic
and diluted $ 0.02 $ 0.05 $ 0.06 $ 0.17
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Aurizon Mines Ltd.
Statements of Comprehensive Income (Unaudited)
(expressed in thousands of Three months ended Nine months ended
Canadian Dollars, except September 30 September 30
per share data) 2010 2009 2010 2009
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Net earnings for the
period $ 2,431 $ 8,211 $ 9,927 $ 26,844
Other comprehensive income
Unrealized gains on
available-for-sale
marketable securities 578 - 433 -
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COMPREHENSIVE INCOME FOR
THE PERIOD $ 3,009 $ 8,211 $ 10,360 $ 26,844
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Aurizon Mines Ltd.
Statements of Cash Flow (Unaudited)
Three months ended Nine months ended
(expressed in thousands of September 30 September 30
Canadian Dollars) 2010 2009 2010 2009
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Operating activities
Net earnings for the
period $ 2,431 $ 8,211 $ 9,927 $ 26,844
Adjustment for non-cash
items:
Depreciation, depletion
and accretion 8,104 10,147 26,115 27,940
Refundable tax credits (1,043) (127) (1,985) (472)
Non refundable tax
credits (653) - (1,237) -
Stock based compensation 804 516 4,770 2,081
Unrealized derivative
gains (4,185) (715) (8,715) (13,658)
Future income taxes 240 2,604 5,455 13,217
Capital taxes 69 270 179 811
Other 168 - 273 34
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5,935 20,906 34,782 56,797
Decrease (increase) in
non-cash working capital
items (264) (3,339) (3,434) 3,043
Non refundable taxes 1,430 - 1,430 -
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Net cash provided by
operating activities 7,101 17,567 32,778 59,840
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Investing activities
Property, plant and
equipment (1,773) (1,751) (4,838) (9,473)
Mineral properties (4,886) (6,571) (17,262) (19,489)
Restricted cash proceeds - 30,208 - 21,225
Derivative instruments - (2,620) - (2,620)
Refundable tax credits - 3,298 - 3,298
Purchase of marketable
securities - - (500) -
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Net cash provided by (used
in) investing activities (6,659) 22,564 (22,600) (7,059)
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Financing activities
Issuance of shares 6,186 358 8,318 50,705
Long-term obligations (21) (20,951) (661) (29,818)
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Net cash provided by (used
in) financing activities 6,165 (20,593) 7,657 20,887
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NET INCREASE IN CASH AND
CASH EQUIVALENTS 6,607 19,538 17,835 73,668
CASH AND CASH EQUIVALENTS
- BEGINNING OF PERIOD 124,326 88,467 113,098 34,337
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CASH AND CASH EQUIVALENTS
- END OF PERIOD $ 130,933 $ 108,005 $ 130,933 $ 108,005
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SOURCE Aurizon Mines Ltd.
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