Guyana Goldfields nears production at Aurora

Guyana Goldfields (TSX: GUY) is gearing up for production at its Aurora gold mine in Guyana this August, which will make it the newest gold producer in the South American nation.

Aurora sits in a forested region, 170 km west of the capital Georgetown. It should produce a total of 3.29 million oz. gold — averaging 194,000 oz. per year — over an initial 17-year mine life. Estimated operating cash costs are US$527 per oz., with all-in sustaining costs of US$698 per oz. (Both amounts include royalties.)

“We are actually commissioning the mill right now,” Scott Caldwell, the company’s CEO, said in a July 24 interview. “We’re on track to hit our completion milestones. By the end of the month, the entire plant — except for the primary crusher — will be in the commissioning phase or operation-ready.”

The junior is running the saprolite circuit, which has a gravity circuit and carbon-in-leach (CIL) tanks. The initial ore doesn’t require crushing and goes directly to the semi-autogenous grinding (SAG) mill, Caldwell explains. The junior expects to find hard rock in November, coinciding with when it will turn on the primary crusher.

“We will hit commercial production of 5,000 tonnes per day some time in September,” Caldwell reckons. Once the mill reaches design capacity, it should produce 10,000 oz. gold a month.   

Guyana Goldfields estimates delivering 30,000 to 50,000 gold oz. this year, followed by 120,000 to 140,000 oz. in 2016, the first full-year of production.

The Aurora project picked up momentum in 2013, Caldwell notes. After a “false start” with a modest feasibility study in 2012, the company published a revised feasibility study in January 2013, showing a combined open-pit and underground mine with start-up costs of US$205 million and healthy returns.

Over the next two months, Guyana Goldfields closed two equity raises priced at $3.40 a share, including a $100-million bought deal and a separate $5.6-million private placement with the International Finance Corp. (IFC). 

The junior used the proceeds to order long-lead items, primarily the SAG mill, in October that year. In the following two months, it signed a mandate letter with the IFC to arrange a senior debt facility, selected an engineering, procurement and construction (EPC) contractor, and updated the feasibility study’s initial costs to US$249 million. 

The US$44-million hike resulted from detailed engineering and the company’s decision to use an EPC contractor to build Aurora’s processing plant and diesel power plant. 

Despite the higher costs, the project’s economics remain robust. Based on a US$1,300 per oz. gold price and a 5% discount rate, Aurora has an after-tax net present value (NPV) of US$735 million and an internal rate of return (IRR) of 31%. Payback should occur within 4.4 years. If gold drops to US$1,000 per oz., the after-tax NPV and IRR are a promising US$374 million and 20%. (The spot gold price closed July 25 at US$1,099.50 per oz. in New York.)  

Come 2014, the firm formalized an EPC contract with Sedgman Ltd. and Grana y Montero for US$137 million.

Caldwell says the company benefitted from building the mine during the commodities downturn, explaining there was “less competitiveness on people and on equipment,” and that “we were able to get a really good team of professionals to help build this mine, with vast experience that in reality if this was five, six, seven or eight years ago, we wouldn’t have been able to get this team. So we got the A-team.”

Despite the bleak capital markets, the firm scored a US$185-million project loan last June with a syndicate of senior lenders, including IFC, Export Development Canada, ING Capital LLC, Caterpillar Financial Services Corp., and the Bank of Nova Scotia. 

The loan consists of two tranches, including a Tranche 1 US$160-million facility and a Tranche 2 US$25-million cost-overrun facility. 

As a requirement for the loan, Guyana Goldfields had to raise US$33 million in equity. It wound up closing a US$44.4-million, non-brokered private placement of 24 million shares at $1.85 apiece last June.

Caldwell recalls the biggest challenge he had since becoming CEO in June 2013 was getting the financing in place. “It all came together, but it was a bit of handwringing, when we’re spending all our money ordering things … when we didn’t have the whole project financed. So, it was a bit nerve-racking for a few months there.” 

The project’s total cost is US$277 million, consisting of US$249 million in pre-production capital, and US$28 million in financing costs, pre-operating costs and working capital. The junior is financing that through US$117 million in equity contributions and the US$160-million Tranche 1 facility.

“Now what keeps me awake at night is getting this thing commissioned,” Caldwell admits. “It’s never easy. We’ve got a great team. But it’s the classic ‘you run awhile, you break something.’ Instrumentation is always a pain in the neck. But we’re getting there. We’ve got the gravity circuit and SAG mill running now. We’re waiting for the CIL to be cleaned up and turned loose, and we’re off to the races.” 

The company has access to US$52 million in an overrun facility. Roughly half of that will go back to the banks. The remaining half will go towards funding a US$26-million debt service account and a US$4-million reclamation account, Caldwell says.

“Once we have that US$30 million placed in the banks’ hands, then we start to generate free cash.” Of that free cash flow, Guyana Goldfields will keep 70% and use the remaining 30% to pay off its bank loan.

It will also use that free cash flow to expand the mill throughput to 8,000 tonnes per day in late 2016. This should increase production to 220,000 oz. gold a year for the next 10 years, starting in 2017.

All those ounces will come from the open pit, until underground mining starts around 2024. “Our current thinking is to defer the underground [development] for approximately eight years from now. This gives us more time to accumulate more cash and to get a bit more familiar with the deposit,” Caldwell says.    

Commenting on the recent drop in gold prices, he notes that “we’re blessed with good grades, great recovery, very low strip ratio, really good metallurgical characteristics and low fuel prices. So I think we are going to fare OK.”

With all-in sustaining costs of under US$700 per oz., Aurora is set to become one of the lowest-cost gold mines. 

Guyana Goldfields finished July 27 at $3.61 per share, with a $545-million market capitalization. 

“The company’s shares remain poised for a positive re-rate through commissioning and upon delivering first production,” BMO analyst Andrew Kaip notes. He has $4.50 target and a “speculative outperform” rating on the stock.