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TABLE OF CONTENTS Apr 21 - 27, 2014 Volume 100 Number 10 - 0 comments

AuRico impresses with solid production numbers

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AuRico Gold (TSX: AUG; NYSE: AUQ) couldn’t wait to show the market its production results.

A day after the first quarter ended, the company showed off results from its Young–Davidson and El Chanate mines, and beat analysts’ estimates with total production of 54,000 oz. gold in the first three months of the year.

The numbers bettered BMO Capital Markets and Scotiabank’s production forecasts for the quarter, with the Young–Davidson mine, 60 km west of Kirkland Lake, making up 35,000 oz. production; and El Chanate, 37 km northeast of Caborca in Sonora state, Mexico, accounting for the remaining 19,000 oz. gold.

The Toronto-based gold miner is on its seventh straight quarter of production growth.

Hard numbers on the cost side aren’t available yet, but AuRico says cash costs from the underground sections of the two mines will be in line with guidance levels. For Young–Davidson that means underground mining costs of US$45 per tonne. BMO Capital Markets analyst Brian Quast wrote in a research note that this “leaves the Young–Davison open-pit cash costs as the swing factor for the quarter.”

Quast rates the company’s stock as a “market perform,” with a $6.25 price target.

The Young–Davidson underground averaged 2,600 tonnes per day during the quarter, which was similar to results from the quarter before. By year-end the company expects to reach 4,000 tonnes per day.

Grades dipped slightly from the previous quarter, coming in at 2.9 grams compared to 3.1 grams, but excluding the fourth-quarter  of 2013, they trend higher from the 2.5 gram average last year’s second quarter.

At the mill, operations are running at or above planned levels, with 7,150 tonnes milled per day. The numbers are getting stronger — averaging 8,200 tonnes in March. The company ramped up milling after amending its permit, reaching 10,000 tonnes per day.

Scotiabank analyst Trevor Turnbull also liked the company’s work on the financing side, with a recent senior-note financing giving investors more assurance going forward.

“While at 7.75% interest the new debt comes at a higher cost than the convertible notes at 3.50%, the later 2020 repayment date (versus 2016 on the convertible notes) brings a considerable element of certainty to the balance sheet, given the sizable capital expenditures in ramping up Young–Davidson underground,” Turnbull wrote in a research note.

Turnbull rates the stock as a “sector outperform,” with a $6 share target.

On April 2 — the day after the results were released — the company’s stock was up 2%, or 9¢ to $4.80, on 1.8-million shares traded.

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