Guyana Goldfields’ reserves drop 43% with new deposit model

The amount of gold in proven and probable reserves at Guyana Goldfields’ (TSX: GUY) Aurora mine in Guyana has been lowered 1.69 million oz., compared with estimates a year ago, based on “a new and more appropriate mine model,” the company says.

Total proven and probable reserves in open-pit and underground categories at the end of 2018 stand at 2.27 million oz. gold (in 26.95 million tonnes grading 2.63 grams gold per tonne), down from 3.97 million oz. (43 million tonnes at 2.87 grams gold) at the end of 2017.

Year-over-year, that represents a 37% drop in tonnage, an 8% drop in grade and a 43% drop in gold ounces in the reserve category.

Of the reserve shortfall, 188,000 oz. gold came from depletion from mining, and 1.51 million oz. from the revised model, completed by Roscoe Postle Associates.

The updated mineral reserves are an estimate for open-pit and underground production based on the company’s revised resource model. The new methods are based on an interpretation of the style and structural controls of certain mineralization areas, resulting from open-pit production and geological mapping, 12,801 metres of new core drilling, and the re-logging of 50,000 metres of drill core. Modelling parameters — including grade-capping, domain boundaries, and kriging algorithms — were also modified, in addition to updated cut-off grades and open-pit optimization.

Measured and indicated resources in open-pit and underground categories inclusive of reserves now total 40.6 million tonnes grading 3.07 grams gold per tonne for 4 million contained oz. gold, and inferred resources add another 27.5 million tonnes grading 2.28 grams gold per tonne for 2 million oz. gold.

Ron Stewart, the company’s senior vice-president of technical services and corporate development, addressed the discrepancies during a question-and-answer session on the company’s March 27 conference call.

“In terms of the resource — the parameters or the way it was previously modelled in Rory’s Knoll — there was a subdomain of high grade that was plus five grams per tonne that was modelled uniquely as a subdomain, so it had a hard boundary to estimate grades within that at plus 5 grams per tonne, but they had a porous boundary out of that high-grade domain, so they allowed the high-grade data to influence blocks outside of that.

“And similarly in that same area, they had an internal waste domain where they excluded assays from influencing block grades, so the combination of the two subdomains in Rory’s Knoll — the high-grade subdomain treatment of data and the low grade, or the waste, rather, internal waste subdomain — conspired to inflate grades in a local area. We hadn’t seen that kind of problem previously higher up in the open pit, because the drill density was so tight that no matter what was done from a resource-modelling point of view, it didn’t go awry. But when we got into fourth-quarter [2018], we got into an area where there was particularly high-grade exploration holes that populated blocks, inflated grades — so that was the local grade problem we had experienced in the fourth quarter.”

An aerial view of the pit at Guyana Goldfields’ Aurora gold mine in Guyana. Credit: Guyana Goldfields.

Since commercial production at Aurora began three years ago, the open-pit mine has produced more than 500,000 oz. gold. Last year, production totalled 150,450 oz. gold, and the company expects to produce 145,000 to 160,000 oz. gold in 2019.

According to a new life-of-mine plan, recovered gold production over Aurora’s remaining 13-year mine life will amount to 2.2 million oz. gold at an average head grade of 2.6 grams gold per tonne. Production will average 218,000 oz. gold per year for the first five years (2019–2023), and is expected to peak in 2024 at 251,000 oz. gold.

Average operating cash costs, including royalties, are estimated to add up to US$813 per oz., and all-in sustaining costs (AISCs) at the mine site would total US$930 per ounce.

Of the 2.1 million oz., 24% is expected to be sourced from open-pit mining, and the other 76% from underground.

The life-of-mine plan estimates that US$124 million would build the underground mine, with another US$256 million for sustaining capital.

Underground mining would occur via decline access, with most tonnes mined from the Rory’s Knoll deposit, using a combination of long-hole open stoping with backfill sublevel retreat, and sublevel caving. At the Mad Kiss and Aleck Hill satellite deposits, the company says it will use long-hole open stoping with sill and rib pillars to lower the backfill requirement.

Guyana Goldfields expects underground production will average 5,200 tonnes per day over the life-of-mine, and management says underground development could upgrade and expand the underground resources through exploration drilling.

“Clearly, the future of this property has been and continues to be the transition from open pit to underground,” Scott Caldwell, the company’s president and CEO, said on the conference call. “We will begin work on our exploration drifts … and we’ll continue to gather more data as that drift gets deeper and deeper.”

The mill at the Aurora gold mine. Credit: Guyana Goldfields.

While it was “not good news the resource went down,” Caldwell said, the new life-of-mine plan has “created a solid foundation for the future of the company.”

“One thing I’d really like to point out,” he said, “if you look at the life-of-mine plan, management believes that at today’s spot prices, we can self-fund this program out in the future. We can generate enough cash to maintain an adequate cash balance and service our debt, which at the end of the year was US$40 million. We had around US$82 million in cash. So we can generate enough cash through the life-of-mine plan and the transition to underground, and all the activities we’ve got — corporate general and administrative — service the debt [and] exploration, so it’s a solid plan.”

Stewart said that the company sees exploration potential underneath the satellites — Mad Kiss, East Walcott and Aleck Hill — all of which “offer a great opportunity for us to supplement the Rory’s Knoll system with high-grade, vein-style mineralization that we think will really change the economics of the project going forward.

“So on balance, what we think we’ve got here is a far stronger, more solid foundation, with great opportunities to enhance this as we move forward,” he said. “Any [National Instrument 43-101 resource estimate] is a snapshot in time. It takes current understanding of costs, and current understanding of the geology and the mineral system. The evolution of this project going forward — we see an opportunity to reduce costs, change the capital format of the development of underground, change the underground, even look at certain underground mining techniques that could benefit this project. So the amount of benefits that we still have in front of us are considerable. We are looking forward to moving forward through the next couple of years, and transitioning this into a stable, long-term underground producer.”

Last year, Aurora produced 150,450 oz. gold, a year-on-year decrease of 10,050 oz., mainly attributable to a lower head grade of 2 grams gold, compared with 2017’s 2.46 grams gold. The mill averaged throughput of 7,100 tonnes per day. Cash costs before royalties in 2018 were US$712 per oz., up from 2017’s US$556 per oz., while 2018 AISCs reached US$1,097 per oz., up from 2017’s US$846 per ounce.

At press time, Guyana Goldfields’ shares were trading at $1.13 — a new 52-week low. Its shares traded at a 52-week high of $5.42 on May 9, 2018. The company has a $196-million market capitalization.