Aurion Resources (AU) - Aspiring to be Like $1B Neighbour

Aurion Resources is a Canadian exploration company. The company's strategy is to generate or acquire early-stage precious metals exploration opportunities and advance them through direct exploration through its experienced team or by way of business partnerships and joint venture arrangements. The company's current focus is on exploring its flagship Risti and Launi projects along with the advancing of the joint venture arrangements with Kinross Gold Corp, B2Gold Corp, and Strategic Resources Inc. in Finland.

Matt Gordon caught up with David Lotan, Chairman, and Director, Aurion Resources. David is the President of LHI, an investment company focused on natural resource opportunities. In his previous career, David was the founder and CEO of the structured finance operations at Polar Capital, a Canadian merchant bank and alternative asset manager that acted as a portfolio manager for the Ontario Teachers' Pension Plan. He also served as a risk management consultant with PricewaterhouseCoopers, focused on commodities and rates. He is a Chartered Accountant and CPA. 

David Lotan bailed out Aurion Resources in 2015 during its bankruptcy. The company was unable to attain capital from the market to fund operations. David solely funded the company for a period of 18 months. He later joined the Board to provide the company access to capital markets. Following a significant discovery, David collaborated with the Board and the management to arrange a strategic investment from Kinross. He has been a volunteer Chairman for the company ever since. Notably, David does not take any stock options or compensation from the company. 

Company Overview

Aurion Resources has made a number of high-grade gold discoveries, starting at surface on its wholly-owned flagship properties located 40km from Europe's largest gold mine, the Kittila mine. This property is situated near the town of Sodankyla in Finland. The company was founded in 2014 and is headquartered in Newfoundland and Labrador, Canada. The company is listed on the Toronto Stock Exchange (TSX-V: AU) and the OTC Markets (OTCQX: AIRRF). 

Aurion Resources is a greenfields gold exploration company in Finland. The company has multiple emerging discoveries. It has partnerships and investments from 3 major producers that are located adjacent to Rupert Resources' 4Moz Ikkari discovery. 

The company's operations are located 40km away from Agnico Eagle's Kittila mine, the largest gold mine in Europe, and 12km west from Anglo American's Sakatti nickel-copper PGE (Platinum Group Elements) discovery. The company has about 1,000 square kilometer claims within Lapland, one of the most exciting, emerging mineral belts in the world. 

Aurion Resources started as a prospect generation company where the strategy was towards being capital-light with 2 primary attributes and 2 primary assets. The company carries out inexpensive work to identify prospective mineral occurrences. Following this, the company works towards partnerships with a mid-tier or major mining company for funding the advancement of the project, enabling value creation. In case a project is financeable by the prospect generator, the company can make a decision for a sole exploration route. 

There have been several projects including Arequipa, a prospect generator that pivoted to sole risk exploration. Mirasol Resources was a penny stock on just $7 to have its own discovery. Almaden Minerals Ltd. was originally a penny stock that grew to $3-$4 on the Estaca discovery. The most notable example of prospect generation in Canadian history is Virginia Gold where Andre Gaumond did 75 joint ventures. Eventually, the asset was taken forward by the company and sold for $1Bn. This company was spin-out in a royalty that produced an additional $500M over a period of several years. Aurion Resources has a similar prospect generation where it seeks to finance the projects in the most responsible and risk-adjusted manner. 

Aurion Resources (AU) - Aspiring to be Like $1B Neighbour

The Management Team

Aurion Resources was founded by Mike Basha, one of the best prospecting geologists in the history of Canada. He identified the opportunity and staked the ground to put a play together. However, a 2019 tragedy led to the passing of his son. Following this, he stayed with the company for a year in an interim position.

Matti Talikka was appointed the CEO at Aurion Resources. Matti has drilled tens of thousands of meters for gold in Lapland. He is a Finnish native that previously worked with Dragon Mining. He staked the ground where B2Gold Corp. made a discovery later on, in partnership with Aurion Resources. Matti is an exploration geologist who is highly skilled at concept generation and the execution of cost-efficient drill programs. This enables juniors to generate the most amount of data for the least amount of invested capital. 

The company has hired GeoPool, a local contractor that is light on capital and staff. The company is working with a limited number of people and adding pieces of the project as needed. 

Mark Serdan, CFO, Aurion Resources was a Lipper Award-winning gold fund manager at BMO asset. Mark has made significant investments in the company. 

Capital Allocation

David Lotan invested significant capital into Aurion Resources over the years. In 2015, the company was solely financed by David Lotan where debt did not convert to cheap equity. Additionally, David did not draw any equity or warrants. He also re-networked the stock and generated interest for Canadian investors, leading to financing from 3 big funds in 2016 at $0.40 a share without a warrant. The company has raised around $50M from the Canadian capital markets so far. 

Following the discovery, the company raised money at $1.50 from Ross Beattie, John Tognetti, and Kevin MacLean at Sentry Select. Aurion Resources utilized this capital to run a competitive process with several Majors. This led to a $16M investment by Kinross Gold Corp. at $2.30 a share. Goldcorp was also a part of this process. GoldCorp purchased 5% of the company at $2.80 a share. In 2019, Eric Sprott purchased 5% of the offering at $1.50, gaining a 5% ownership of the company on a basic shares outstanding basis.

Aurion Resources seeks opportunistic financing that enables it to run programs, attain good results and add capital if available at good prices. The company's assets are situated within orogenic territory with deep-rooted gold systems that are complicated but feature high grades and have a multi-year potential. As per the company, well-run orogenic discoveries can yield an average take out of about $500M. The average spending to reach these outcomes ranges between $20M-$50M. 

The property has exceptional surface expression of gold. The company anticipates that the property has the potential to yield an attractive share price for incoming investors. It is currently working on controlling dilution as it currently has 108M shares in the market. 

Judging by the recent market acquisitions, including Kinross' purchase of Great Bear for $1.8Bn, Pretium Resources' acquisition by Newcrest Mining Ltd. for $3.5Bn, Aurion Resources anticipates increasing its resource size along with responsible financing can lead to a significant jump in its assets evaluation. 

Aurion Resources (AU) - Aspiring to be Like $1B Neighbour

The B2Gold Corp. Joint Venture

B2Gold Corp. has had a strong partnership with Aurion Resources since 2015. The former has spent $15M to earn 70% of the Kutuvuoma-Ikkari corridor. Following Rupert Resources' discovery, B2 was able to move the drill to a part of the property that led to a new discovery. In order to attain 75% of the corridor, B2Gold Corp. would need to produce a BFS (Bankable Feasibility Study) and arrange Aurion's share of project debt under the options agreement. In order to earn an extra 5% of the corridor, B2 would need to spend over $50M. 

Hence, B2Gold Corp. decided to challenge Aurion Resources to raise money on the strength of the discovery. The latter was able to raise capital on the discovery while maintaining a healthy balance sheet. 

Aurion Resources anticipates that B2Gold Corp. will provide a CAD$10M budget for the next year. The former is looking to contribute $3M from its $25M current cash reserves. Aurion Resources has a $140M market cap. 

The company expects that spending CAD$10M will generate significant project value. As per the joint venture terms, the company will attain 30% of the project's value. The CAD$10M investment would enable the company to take a decision on developing a resource at the Kutuvuoma-Ikkari corridor. 

Aurion Resources is looking to carry out a base of till sampling along with mapping, geophysics, and testing of mineral occurrences through a limited number of drill holes on its wholly-owned properties along with the joint venture projects. 

Aurion Resources (AU) - Aspiring to be Like $1B Neighbour

The Aamurusko deposit

Aurion Resources has 100% ownership of the Aamurusko deposit. The company made the first discovery at the asset in 2017. This was a massive boulder discovery that required 42 drill holes. The discovery hole was 3m of 800g along with multiple high-grade drill holes. 

Drilling at Aamurusko has been challenging due to its location in the middle of a rubbly hill. Due to a lack of flat land, moving the drill around is significantly expensive. This project was being explored by the use of helicopter drilling. The company was open to tolerating waste at the beginning of the drill program, however, due to the operation being overly expensive, it was ended. Eventually, Matti Talikka, the company's CEO found a solution to the issue, making the operation significantly more cost-effective and efficient. 

Aurion Resources (AU) - Aspiring to be Like $1B Neighbour

Aurion Resources chose a JV (Joint Venture) model to carry out business operations. This is because the company was originally a penny stock that was raising capital at $0.25 and $0.40. Following the boulder discovery, its stock jumped to $2. It took a decision to allocate 10% or less of the company to raise capital that would fund the exploration. 

The boulder discovery features thousands of giant quartz fragments. The company anticipates the presence of economically significant reserves below these fragments. The company's first drill campaign confirmed that the economically significant portions were adjacent. The second drill program successfully identified the economic occurrence. 

Aurion Resources made 2 high-grade, at-surface discoveries at the Aamurusko deposit. These discoveries were made through helicopter drilling. Following this, the company sought low-odds, high-payoff satellite occurrences that did not hit.

The company also endured slowdowns due to covid. The project was able to bounce back due to a jump in gold's market price along with new discoveries on adjacent properties. Around this time, the M&A (Mergers and Acquisitions) activity within the gold space also started ramping up, leading to an increase in prospect value. 

All targets investigated by the company in 2020 were semi-mature in nature. These targets were outcropping gold on-surface, similar to Aamurusko. These deposits were chemically-inert sediments that normally do not host gold. However, the company was able to discover a significant gold occurrence at Aamurusko. Due to the drilling inefficiency and costs, the company took the project offline during the pandemic. The company spent significant capital on high-risk, low-odds targets. Despite not hitting targets, the company is still expecting a significant upside. 

Aurion Resources forecasts the size of the JV with B2Gold Corp. could be evaluated at $1Bn. A 30% share would provide the company with $300M in value. The company anticipates that Aamurusko is a conventional orogenic discovery that can fetch an average take out of $500M. 

Aurion Resources (AU) - Aspiring to be Like $1B Neighbour

The company is looking to expand existing discoveries. The helicopter-based drilling had a cost of $700/m, following the improvements in the program, the company was able to bring the exploration costs down to $250/m. According to the company, the deposit previously had 10% odds at success, however, based on recent discoveries and the drop in exploration costs, the success rate is anticipated at 80%. Aurion Resources is currently running a base of till programs at the asset similar to Rupert Resources' Ikkari deposit to identify gold occurrences. 

The company currently has 3 ongoing programs. The first is a joint venture with B2Gold Corp where the asset is quickly generating potential value. B2Gold Corp. is the operator in this joint venture. The second program is the 2017 Aamurusko discovery which is undergoing a cost-appropriation at the moment. This discovery singlehandedly led the company to a $200M market value in 2017. The third program encompasses the orogenic programs around the property, which the company is exploring using the same techniques as Rupert Resources to make new discoveries.

Aurion Resources (AU) - Aspiring to be Like $1B Neighbour

To find out more, go to the Aurion Resources Website

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