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Aurizon Mines Ltd. (AMEX: AZK)

Aurizon Mines Ltd. (AZK) a Canada-based gold producer with operations and development activities in the Abitibi region of Northwestern Quebec, one of the world’s most favorable mining jurisdictions and prolific gold and base metal regions. The Company owns 100% of the Casa Berardi gold mine; one advanced-stage project, the Joanna gold project; and one early stage exploration project, the Kipawa gold/uranium project. In addition, Aurizon Mines retains a gold-indexed royalty on future gold production from the Beaufor mine and Perron property.

Measured and Indicated mineral resources are estimated at 936,000 and 1.53 million gold ounces at Casa Berardi and Joanna projects, respectively. Inferred mineral resources estimates constitute 920,000 and 1.26 million gold ounces, at Casa Berardi and Joanna projects, respectively. The Company was founded in 1988 and is headquartered in Vancouver, Canada.

Source: Reuters.com, SEC Filings.

Financial Summary

Revenue increased to CAD44.2 million in the second quarter of 2009 from the sale of 42,042 ounces of gold, compared to CAD36.3 million from the sale of 41,217 ounces of gold in the same quarter of 2008, primarily as a result of a weaker Canadian dollar and higher realized gold prices. The Company reported earnings of CAD13.6 million, or CAD0.08 per share in the second quarter of 2009, compared to earnings of CAD5.6 million, or CAD0.04 per share, in the same period of 2008. Results were positively impacted by non-cash derivative gains of CAD9.7 million on an after tax basis. After adjusting for this item, earnings for the quarter were CAD3.9 million, or CAD0.02 per share, compared to adjusted earnings in the second quarter of 2008 of CAD1.1 million or CAD0.01 per share.

As at June 30, 2009, cash and cash equivalents stood at CAD88.5 million, compared to CAD34.3 million at December 31, 2008. In addition, restricted cash balances in respect of the Casa Berardi debt facility totaled CAD30.2 million at December 31, 2008, compared to CAD21.2 million in 2008. AZK had a working capital of CAD84.1 million compared to CAD24.1 million at the end of 2008. Reflected in working capital are the two final project debt repayments due in September 2009 and March 2010 totaling CAD21.0 million and net derivative liabilities totaling CAD10.0 million compared to CAD13.3 million at the end of 2008. Long-term debt at June 30, 2009, totaled CAD0.7 million as compared to CAD9.4 million at the beginning of the year, which included project debt of CAD8.25 million.

Source: Yahoo! Finance, SEC Filings.

AZK’s share price improved steadily since the turmoil in late 2008, which brought its share price down as low as $1.50. Since reaching a high of $5.10 in April, the price continues to hold in the range of $4-$5. Over the last 52 weeks the stock price has ranged from a low of $1.05 to a high of $5.27.

Analyst Consensus

Source: http://markets.ft.com/tearsheets/analysis.asp?s=AZK%3AASQ

Investment Highlights

The Company primarily focuses on the mining and development of the Casa Berardi property in Quebec. Gold production from Casa Berardi re-commenced in November 2006, 10 years following the previous operating period from 1988 to 1996. In 2008, gold production from Casa Berardi totaled 158,830 ounces compared to 159,469 ounces in 2007. Estimated production for 2009 based on the current mine plan is between 150,000 to 155,000 ounces at an estimated total cash cost of $390 per ounce, assuming a CAD/U.S. dollar exchange rate of 1.20. The average daily mine production is estimated at 1,800 tonnes per day in 2009, in line with 2008. Ore grades are expected to average 7.9 grams per tonne compared to the 8.2 grams per tonne achieved in 2008.

The Casa Berardi gold deposits are located along a five-kilometer east-west mineralized corridor. The mine has produced more than 1 million recovered gold ounces since commencing production in 1986, including 375,000 recovered ounces since AZK re-commissioned production in December 2006. According to the Company’s mine plan, output from Casa Berardi will increase to 196,000 annually by 2013, as underground production is supplemented by material from the East Mine open pit.

AZK approved an exploration budget of CAD15 million for this year, to complete 40,000 meters of underground and surface drilling and 1,900 meters of underground exploration drift access. The Company recently completed a new exploration drilling along the newly completed exploration drift, on the 810 meter level, at its Casa Berardi Mine. Five holes have been completed along the same section 120,650 meters east of the existing shaft, collared from the 810 meter level exploration drift. The results from two of the five holes have returned high grade intersections in quartz veins such as 16.8 grams of gold per tonne over 5.3 meters (true thickness) in hole CPB-0057, and 18.9 grams of gold per tonne over 4.0 meters (true thickness) in hole CPB-0058 that confirms the continuity of the structure and the consistency of mineable grades over 200 meters on the section. A new mineral resource estimate is expected to be completed as at December 31, 2009. There are currently nine active rigs on the property.

At Joanna project, the Company completed a major in-fill drilling program over the last year to upgrade its inferred resources into measured and indicated. A prefeasibility study is currently in progress on the Hosco deposit, incorporating a measured and indicated resources estimate of 29,600,000 tonnes at an average grade of 1.4 grams of gold per tonne, or approximately 1.27 million ounces, together with the results of the ongoing metallurgical tests. The Company previously reported results from diamond drilling which intersected 3.0 grams of gold per tonne over 4.6 meters including one sample at 9.0 grams of gold per tonne, 200 meters south of the main Hosco zone. Recently, one grab sample returned a grade of 11.8 grams of gold per tonne. The studies are anticipated to be completed in the third quarter, 2009. Conceptually, AZK’s management considers the Joanna to be a project that could produce roughly 100,000 ounces annually over about a 10-year mine life

The Kipawa gold-rare earth’s project is an early stage exploration project located approximately 100 kilometres south of Rouyn-Noranda, halfway between the Elliot Lake uranium camp and the Abitibi gold belt camp. The first drilling program recently completed at Kipawa by Aurizon totaled 681 meters in four drill holes with the objective of testing the Snake rare earth elements target, located in the western part of the Kipawa southern claim block. In terms of the gold, the Company found very high gold values in the glacial till running as high as 6, 7 and 8 grams per tonne with one value of about 100 grams per tonne. Future work programs will be developed to identify the source of gold values previously discovered in glacial till.

In April, AZK completed a bought deal equity financing, for gross proceeds of $50 million. A syndicate of underwriters purchased an aggregate of 9.71 million common shares of Aurizon at a purchase price of $5.15 per share. The net proceeds of the financing will be used by the Company to strengthen its working capital position and for other general corporate purposes, including potential acquisitions.

In March 2008, gold prices hit a record high of $1,033 an ounce as the gold bull market entered its seventh year of life. In recent months, gold rose to a record on speculation that currencies will depreciate, spurring inflation and boosting the appeal of the precious metal for investors seeking to preserve their wealth. Thus, year-to-date, gold has raised 18%. In early October, gold futures climbed as high as $1,045 an ounce in New York, topping the previous record of March 2008. The slumping dollar helped propel gold above the previous record. Analysts project the metal will reach $1,200 by the end of the year and $2,000 by 2012.

Technical Analysis

Source: http://stockcharts.com/h-sc/ui

The Company is trading above its 13-day moving average. This is considered to be the sign of a bullish trend. There is added weight to this indication because the moving average is rising and suggests that there has been buying interest in this stock.

The MACD for AZK currently indicates a strong bullish signal for two reasons. First, the MACD is above the signal line, a 9-day moving average. Second, the MACD is above 0, which implies that the underlying moving averages are trending higher.

AZK’s recent volatility has been greater than normal. This is evidenced by the increased distance between the upper and lower Bollinger Bands. These bands measure volatility using standard deviation and a large width is due to high volatility. Additionally, the Company is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

Comparative Analysis

AZK is traded with significant discount to peer P/E and P/S multiples. The Company’s stock is relatively cheap among high quality, profitable producers, given that is operating a profitable, cash-flow positive operation.

The outlook for gold remains positive and with the stability of operations at Casa Berardi providing significant cash flow, the Company should further strengthen its balance sheet position, while continuing to fund its planned exploration and capital programs.

Source: Thomson Financial, Yahoo! Finance, Analyst estimates.

Insider Trading Activity

Net Share Purchase Activity

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