Guyana Goldfields fully funds Aurora

Guyana Goldfields (TSX: GUY) has secured financing to bring its Aurora gold project in Guyana into production by mid-2015. The good news came in the form of approvals by a group of lenders to provide US$185 million in debt financing to cover the development and construction of Guyana Goldfields’ flagship asset.

The project loan will consist of two tranches: the first of US$160 million, followed by a cost-overrun facility of US$25 million. The loan will have a maximum term of eight years and an interest rate based upon the three-month Libor rate, which works out to 6.3% for the first tranche and 6.8% for the second.

The group of lenders includes International Finance Corp., Export Development Canada, ING Capital, Caterpillar Financial Services, and the Bank of Nova Scotia.

As part of the loan, the Toronto-based miner is required to fund another US$33 million as a condition of first disbursement.

Guyana Goldfields intends to raise that amount through a non-brokered private placement offering that has recently grown to 24 million shares at $1.85 for proceeds of $44 million. The placement is set to close in late June. Around that time, Guyana intends to finalize the loan agreement.

“We are looking at first drawdown after our [US$33-million] equity contribution to the project is reached, likely at the end of August,” Paul Murphy, the company’s chief financial officer, said on a conference call.

The cost to start up Aurora, including contingency, is US$249 million. This increases to US$277 million, considering the interest during construction, working capital and the financing’s transaction costs.

Murphy says the company should have more than $50 million in its treasury after fully funding the project to production. He notes Guyana has US$335 million in total funding, including the project loan, proceeds from the private placement, US$77 million cash-on-hand and the amount already spent on the project.

Guyana Goldfields has so far spent US$47 million at the Aurora project and has pushed it towards the 30% completion mark.

The company plans to increase its investment in the coming months as it places equipment orders and brings contractors to the site.

The project remains on track to achieve commercial production as an open-pit mine in mid-2015.

Aurora should produce a total of 3.29 million oz. gold over its 17-year mine life. This is an average of  194,000 oz. gold a year at life-of-mine operating cash costs of below US$600 per oz.

Analysts view the financing news as a positive. “Securing credit approvals for the US$185-million debt financing closes the funding gap for the Aurora gold project and reflects a key de-risking event for the company,” said BMO analyst Andrew Kaip. He has $3 target and an “outperform speculative” rating on the stock.

Cowen and Co. analyst Adam Graf says: “Now, with a solid and experienced management team in place, an updated feasibility study, all necessary permits and financing, the company is ready to move forward with construction. If production is achieved on time and on budget, Guyana Goldfields will be one of the few development stories in the industry to have brought a project into production on its own,”

Graf has a $5.97 target price and an “outperform” rating.