Aurizon Mines: Bug food

By hunting in the Canadian tundra, gold company Aurizon Mines Ltd. (AMEX: AZK) is developing projects to add new production to a starving market. After all, with world production declining and demand rising, there are a lot of hungry gold bugs to feed.

Aurizon is a potent combination for small-cap investors: an emerging company in a hot market. Based in Vancouver, B.C., Aurizon wants to exploit the rally in gold prices by developing its projects in the Abitibi region of northwest Quebec, which it views as one of the world’s greatest gold and base metal areas.

The company’s 100%-owned Casa Berardi mine began commercial production in the second quarter of 2007. Based on current mineral reserves, it is expected to produce about 165,000 ounces annually. Exploration still is going on at Casa Berardi, and it is in earlier stages at the company’s Joanna property. It’s at an even earlier stage at Aurizon’s gold and uranium project, Kipawa.

Like a good miner, Aurizon’s outlook is a gold bug’s grace: the U.S. dollar is going to decline further; there are more than enough dollars to go around; gold is cheap in terms of inflation, oil and financial assets; monetary reflation is at hand; mine output is declining, demand is increasing; and the political environment favors gold.

Not so great for many of us, but well and good for Aurizon. Global mine production has declined 1% to 2,447 tonnes in 2007 from 2006, according to the World Gold Council, and expectations are for similar flattish output for at least the next couple of years. Thin production is not matching demand, which the Council shows rising 4% in tonnage terms in 2007 from the previous year — led by a 6% gain in jewelry consumption.

But high and volatile gold prices took fourth quarter 2007 demand down 17% from the corresponding quarter in 2006. Demand declined the most in India, the world’s largest gold market, by 64% in the fourth quarter, following 40% growth in the first three quarters of 2007. And the weak economy and poor retail demand dented demand in the United States, which fell 14% in 2007 from 2006. Oh, those finicky bugs. Don’t they know how much it costs to put metal on their plates? 

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