Buddy Doyle takes on Brazil with Amarillo Gold

Seven years in the malaria-infested rainforests of Papua New Guinea and six years in the frigid Tundra led Buddy Doyle and his exploration teams at Rio Tinto (RTP-N, RIO-L) to the two biggest discoveries of his career: the 30 million ounce Minifie gold deposits at Lihir and the Diavik diamond mine.

But after two decades at a major the geologist from Brisbane Australia decided it was time to strike out on his own. He made the jump into the juniors in 2004 and today heads up Amarillo Gold (AGC-V), a company with ground in Brazil.

“It was a good 23 years and I must admit leaving it was one of the scariest decisions I have ever made,” Doyle reflects in an interview.

“It was great having a big company with support and infrastructure but with that comes a lot of red tape so I thought I would jump out the next time there was a boom and 2004 was a good time to jump out and that’s what I did.”

His leap of faith resulted in the start up of Amarillo Gold, a company in which he and co-founder and fellow Australian geologist Rick Brown invested their combined life savings of US$450,000, and took public in 2005.

The junior’s flagship project is Mara Rosa, a formerly producing open-pit mine in central Brazil’s Goias state, about 36 km to the northeast of Yamana Gold‘s (YRI-T, AUY-N, YAU-L) Chapada open-pit copper and gold mine, and 100 km from Kinross Gold‘s (K-T, KGC-N) Crixas underground mine.

Mara Rosa is also about 105 km northeast of Kinross’s and AngloGold Ashanti‘s (AU-N) Serra Grande underground gold mine, 105 km northwest of Anglo American‘s(AAUK-Q, AAL-L)  nickel laterite project (under construction), 95 km northwest of  Votarintim’s Niquelandia nickel laterite mine, and about 60 km northeast of  Yamana’s Pilar gold project, which is in the feasibility stage.

Amarillo is advancing Mara Rosa through a pre-feasibility study and Doyle says the company expects to make a production decision some time in the first quarter of 2012. Conceivably the project could be in production as early as 2014. Kinross holds a 5% stake in the junior.

“We are about de-risking Mara Rosa and moving on to feasibility and we should have the decision to mine early next year and about 18 months after that we can be mining,” he says. “Judging by all the mining around us, getting environmental permits is doable and we don’t see any roadblocks there.”

Grid-power to the site was established during the previous open-pit mining operation, there is a paved highway to site, and 35 km to the east is the Serra de Mesa 450-megawatt hydro-electric dam.

“You drive to your drill rig, your cell phone works, and there’s great geology – to me it’s paradise,” says Doyle, whose memories of foot rot and malarial fevers in the jungles of Guinea and bone-chilling temperatures of the Arctic are still vivid.

Mara Rosa’s Posse deposit has a National Instrument 43-101 indicated resource of 11.9 million tonnes grading 1.62 grams gold per tonne for 623,000 ounces of contained gold. Inferred resources add 10.1 million tonnes grading 1.38 grams gold for 451,000 ounces of gold, at a 0.5 gram gold per tonne cutoff grade.

“We all thought this would be a good project to buzz US$600 per oz. gold because we thought US$600 would come some day,” Doyle recalls. “So now at these gold prices it’s a great little project. It’s basically 900,000 ounces accessible to an open pit”

“We’ve done forward modeling to about US$1,200 per oz. gold,” Doyle continues. “A US$1,200 per oz. pit goes down about 300 metres and has a 5.4:1 strip ratio.”

Results from recent resource definition drilling at Mara Rosa included intercepts such as 26.3 metres of 1.08 grams gold; 25.4 metres of 1.47 grams gold; and 16.4 metres of 3.17 grams gold.

Doyle says the company’s strategy is to push ahead with the development of a mine at Mara Rosa but adds that the company fully intends further exploration around the site.

“We think there’s blue sky around Mara Rosa but we have the bird in the hand and with the gold price the thing has nice economics so we’re moving ahead with what we’ve got but after we’ve been doing the drilling that’s almost completed now, we do intend to go exploring.”

“Brazil is full of opportunity,” he adds, arguing that there has been a big gap when it comes to gold exploration in the country. “It’s been very successful producing big companies but doesn’t have a lot of junior or middle-sized gold companies. There’s been a big exploration vacuum for gold because gold is too small for the likes of Vale and Votorantim.”

In southern Brazil, Amarillo Gold has an advanced exploration stage project called Lavras do Sul gold project in the state of Rio Grande do Sul. The company says its 12-km by 7-km project is the largest land package put together in the 300-year mining history of the Lavras Intrusion, which contains many old gold workings. So far Amarillo has tested five of the nineteen known prospects at Lavras do Sul and four have returned significant gold values. Each of the areas is far enough away from each other to operate as separate open pits but with one common processing plant, Doyle envisions.

“Our strategy is to map the old areas of diggings and put about ten holes into each one and if any of them come back we’ll spread it out,” he explains. “So far it’s working four times out of five and we’ve got fourteen areas to go. There’s gold in 80% of the holes there so there is a resource there.”

One of the prospects at Lavros do Sul, called Butia, already has an initial resource estimate of 6.4 million tonnes at an average grade of 1.05 grams gold for 215,000 ounces of gold in the indicated category and 12. 9 million tonnes grading 0.74 gram gold per tonne for 308,000 ounces in the inferred, at a cut-off grade of 0.3 gram gold per tonne.

Doyle clearly has a knack for finding deposits. “You get to know what nature delivers,” says Doyle, who in 2007 received the Hugo Dummet award for excellence in diamond exploration. “Big systems deliver big ore bodies and you get to know or have a feel for that…you do get a nose for what nature works. And then it’s down to building the right team and the right people to make it work.”

Dale Mah, an analyst at Mackie Research, has a buy on Amarillo Gold’s stock with a 12-month target price of $2.40 per share.

Amarillo is currently trading at about $1.50 per share and has traded in a range of 50¢ cents (Apr. 8 2010) and $1.90 per share (Dec. 24 2010). It has about 56.2 million shares issued, with no warrants. 

Doyle admits the company is undervalued, partly because as president and chief executive he hasn’t spent enough time on marketing. “Whenever we do try to get our story out and go on a roadshow our share price always goes up but we can’t do everything,” he says. “I’m more effective doing what I do, I’m not built to promote on the street.”