Guyana Goldfields (GUY-T) has been on something of a tear since January after it revised, and vastly improved, a prefeasibility study of its Aurora project.
Earlier this month the company closed a $100 million bought-deal financing that will be put towards advancing Aurora, the remote gold project in north-central Guyana, and next month management plans to complete a bankable feasibility study.
A random survey of four mining analysts that cover Guyana Goldfields suggests that the junior’s share price will—at a minimum—double over the next year from current levels of around $3.00 per share.
“The improvement in the Aurora economics is nothing less than astounding,” Richard Gray of Cormark Securities wrote in a research note, adding that the company and its project will “likely move right back near the top of the list of sought-after acquisition candidates, especially considering the permitting is in place, the project is shovel-ready and there remains significant exploration and resource upside not quantified by the revised feasibility study.”
At a base case of US$1,300 per oz. gold, the revised feasibility study outlined an after-tax internal rate of return of 38%, far superior to the initial 12.7% estimate completed in February 2012, and an after-tax net present value of US$800 million, up from the earlier US$432 million. The strip ratio has also fallen by 48% to 4.7-to-1 waste to ore, from the previous estimate of 9.1-to-1.
The more recent study also estimates that initial capital costs required to start commercial production are US$205 million, down from the previous US$525 million, while total capex (for the open pit operation and subsequent underground mining) has been slashed by 45% to $714 million from $1.29 billion.
Lower underground capital costs stem from the company’s decision to go with “a decline access to a lesser ultimate depth, versus the more capital-intensive shaft option previously contemplated,” Gray explains.
In addition, the time required to payback the capital fell to 3.4 years from 7.2 years. Cash costs, including royalties, have fallen to US$527 per oz. from US$626 per oz. outlined in the first feasibility study.
Moreover, production under the revised mine plan will average about 231,000 oz. gold per year over the first ten years of operation, down only slightly from the previous mine plan that envisioned average annual production in the first decade of 256,800 oz. per year.
Commercial production is forecast to begin from an open pit in the first quarter of 2015, with underground mining to follow in early 2018.
Brad Humphrey of Raymond James estimates that since the equity raise, which closed on Feb. 22, Guyana Goldfields has a cash balance of about $125 million. “While the equity raise doesn’t solve the entire financing puzzle for Aurora the raise will go far in advancing the project,” he writes in a Feb. 26 note to clients.
“We estimate the company will require about $250-260 million for the Aurora project, therefore requiring a further $150-160 million which we estimate about 50% now to be raised from equity," he says. "The remainder we see coming from an IFC loan and equipment financing as we do not assume bank financing will be used at this time.”
RBC Capital Markets’ Sam Crittenden argues that with a mining agreement and permits in place the project could be in production by late 2014 and believes the shares “could re-rate to a higher multiple and become a take-out candidate on successful execution of Phase I of the mine plan.” Crittenden also points out that “significant exploration potential exists on Guyana’s large land package.”
The Aurora property, which consists of a number of gold deposits, is located on the eastern side of the Aurora zoned intrusion in the Cuyuni greenstone belt of the Guiana Shield in the Amazon Craton.
At presstime in Toronto Guyana Goldfields was trading at $3.16 per share within a 52-week range of $1.67-$6.12. The junior has about 125 million shares outstanding.
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