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AuRico (AUQ): Knives out for Marion

The following from Scotia this morning brings to mind a couple of issues. Firstly, because the Canadian mining world is a such a tightly-knit, everyone-knows-everybody-else community, it’s difficult to get the necessary straight talk criticism of any given company’s management team from the people whose job it is to give fair and unbiased commentary, namely analysts. Secondly, as a friend and I were discussing recently (regarding your humble scribe’s own less than perfect faculties more that anyone else) people tend to overestimate their abilities as judges of character,  fair comment re. myself and for what follows.

Getting to the point it’s now noticeable that those who fawned over Rene Marion, now ex-CEO of AuRico (AUQ) (ex-Scammon Gold), are being less guarded about criticism of his tenure now that he’s out to pasture. A good thing too, because all evidence to anyone looking in from the outside is that Marion was always a mediocre company chief.

So to the text, copypasted from this morning’s Scotia mining daily letter:

AuRico’s New CEO Discusses Challenges and Progress at Ocampo: Yesterday, Scotiabank hosted an update for institutional investors with CEO-designate and current CFO, Scott Perry.  Since July 17th when AUQ reported their disappointing q2 production numbers, revised lower 2012 guidance and management changes – the share price is currently -19% vs -3% to -5% for the average Senior & Mid-tier Producer.  Focus during the lunch was on Ocampo given the source of the negative news last week came from this Mine.  The root problem of Ocampo’s issues stemmed from a sudden surge in labour turnover during Q2.  Scott Perry said that once bonuses were paid a high number of skilled workers left the company for other jobs.  The disadvantage in working at Ocampo is the fact that workers are on a 20 days On – 10 days – Off schedule which generally pays better but workers are away from their families more than they are home.  Scott said AuRico once had a retention program whereby if workers stayed at the Mine for 3 years they would get a 50 to 60% bonus paid but this program lapsed after Ocampo reached a steady production profile and this was a big mistake in retrospect.  Scott said the company recognizes they need to pay more to keep their workers and they have reinstated their retention program – they have now filled 90% of their vacant labour positions.  In addition, an underground contractor is being used to catch up on Mine Development with a target of having 6 months of Ore accessible to production workers (Note: that during Q2 this got down to an unacceptable 1 month which bottlenecks Mine Production).  The contractors are hired for development work only.  Currently, Ocampo is developing about 100 m a day, while it needs only 75 m a day to keep pace with production. The company expects to be caught up by mid-2013, but it may keep the contractor on the job beyond that to build a greater development buffer.  By 2014, AuRico still plans to expand the mill to 4,000 tonnes per day (tpd), with 3,000 tpd coming from the underground and 1,000 tpd coming from the open pit. Crushing and grinding capacity exists to support the expansion and only minor modifications to tankage and filtering are anticipated.

What about Acquisitions?  While the company made two acquisitions in 2011 that brought them El Chanate (Capital Gold acquistion), and Young-Davidson (Northgate acquisition) – the company will not be looking at further acquisitions for at least 18 months as they hunker down to surface value with their existing assets. PDF 

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