Shares of gold producer Guyana Goldfields (TSX: GUY) dropped as much as 38% on a weaker-than-expected performance during the third quarter from its wholly owned Aurora gold operation in western Guyana.
Gold output for the three months ended Sept. 30 came in at 22,100 oz., a record low since the open-pit mine started commercial production at the beginning of 2016, and well below market expectations, prompting Guyana Goldfields to acknowledge Aurora would not meet 2019 annual production guidance of 145,000 to 160,000 ounces.
With total gold production for the first nine months of the year at 96,000 oz., the company has opted not to issue revised guidance as it recently started a mine-review plan, although it says gold production during the fourth quarter could improve, as mining moves back into the primary ore zone in the main Rory’s Knoll zone.
Third-quarter operating costs also came in higher than expected, with gold sales of 23,500 oz. at a total cash cost before royalties of US$1,372 per oz., and all-in sustaining costs of US$1,882 per ounce. The company reported an average realized gold price of US$1,485 per oz. for its quarterly sales.
Guyana Goldfields posted a US$9.5-million loss for the quarter, or 6¢ per share, primarily attributable to the US$9-million loss directly from mine operations. The cash balance at the end of the quarter stood at US$24.9 million, down from US$38.9 million at the end of the second quarter.
The company cited increased waste development sequencing, reduced working faces, heavy rainfall, and a three-day work stoppage that blocked ore delivery to the mill as the main contributing factors. The average mining rate over the third quarter came in at 51,500 tonnes per day, or 11% lower than the preceding quarter. Additionally, the average strip ratio during the quarter was 15.6 tonnes of waste to 1 tonne of ore — an increase from the 8.6 to 1 strip ratio from the comparable quarter in 2018.
“The company has experienced ongoing challenges in achieving the optimized sequence of mining and waste development in the open pit, and as a result, we have commenced a thorough review of the Aurora life-of-mine plan,” Allen Palmiere, the company’s interim CEO, said on a conference call. “As part of this review, we are undergoing a comprehensive mine production and cost savings review plan to make the necessary changes and improvements to ultimately increase productivity and profitability.”
The company has tapped Roscoe Postle Associates to help in the review and to build on the engineering firm’s updated mineral resource and mineral reserve estimate study and life-of-mine plan it completed in March 2019, which saw contained gold in proven and probable reserves at Aurora slashed 43%, or 1.69 million oz., to 2.27 million contained oz. gold (in 26.95 million tonnes grading 2.63 grams gold per tonne) as of the end of 2018.
“We don’t expect a review to materially change the total reserves to be mined,” Palmiere said. “However, we may see a change in the sequence of open-pit development and ore release, timing of access to Rory’s Knoll underground, and the mining methods. We will release the details of this review once fully completed, which is expected in the first quarter of next year. However, some cost improvements are expected to begin to be realized almost immediately.”
Despite commissioning a second-phase plant expansion at Aurora earlier this year, the company throttled back its average mill throughput in the third quarter to 6,900 tonnes per day — a 12% drop from the second quarter — with the aim to maximize recovery from the higher proportion of lower-grade materials processed during the quarter. Increased reliance on low-grade stockpiles during the third quarter resulted in an all-time-low average mill head grade of 1.21 grams gold per tonne. Average gold recoveries also came in lean, at 89.1%, due to the lower volumes of higher-grade ore available in the quarter.
“What we were really doing was taking from a very low-grade stockpile that was running about 0.8 of a gram, and the open pit averaged about 1.7 [grams gold per tonne],” Palmiere said in response to questions during the call about the grade profile split between the lower-grade stockpile feed and the open-pit ore.
Laurentian Bank’s Barry Allan lowered his recommendation on the company’s stock from a “buy” to a “speculative buy,” and trimmed his target price from $3.50 per share to $2.40. “Third-quarter operating results were well below our revised expectation and was evidence of a systemic ore grade problem — the magnitude of which we believe is material,” Allan wrote in a research note to clients.
The mining analyst also expressed concern about Guyana Goldfields’ reduced financial strength and cash balance decline, and raised questions about the company’s ability to sustain ongoing capital investment on high-waste stripping operations in the open pit and underground development.
While a decision on potential underground operations at Aurora has yet to be made, it will likely be addressed in the current RPA mine review plan. Guyana Goldfields says it expects enough operational cash-flow generation to fund the necessary planning work, accelerated stripping, and underground development until the end of 2020. The company confirmed on the conference call that development of its underground exploration decline had reached a length of 394 metres.
Guyana Goldfields has had a turbulent year, having weathered a heated proxy battle launched by a dissident shareholder group led by ousted company chair and shareholder Patrick Sheridan, who was pushed out in mid-2018. The group sought to replace the company’s board with its own director nominees, citing a drop in market capitalization, multiple cuts in 2018 production-guidance forecasts, poor performance and disappointment with RPA’s updated mineral resource and mineral reserve estimate study, and life-of-mine plan.
The company and the dissident shareholder group reached a settlement in April that saw Guyana Goldfields CEO Scott Caldwell agree to step down, and proposed director nominees added to the slate. Palmiere was one of the new directors added to the board, and was appointed interim CEO on July 31.
After news of its third-quarter results hit the market, shares of Guyana Goldfields hit an all-time low of 46¢. At press time the stock was trading at 50¢, well below its 52-week high of $1.86 on Jan. 1.
The company has 175 million common shares outstanding for an $87-million market capitalization.