Guyana Goldfields New Com (GYGC)

[Tommy]

$GUYFF - $GUY.V - 'Stupid Cheap' Gold In Guyana

http://seekingalpha.com/article/1516482-stupid-cheap-gold-in-guyana?source=email_authors_alerts&ifp=0

Doug Casey coined the phrase 'stupid cheap prices'. Today we are writing about a company for which this label applies. The company we are writing about has a market capitalisation of $156M. Considering that the company also had $122M in cash and no debt at the end of May we can conclude that assets are currently valued at a mere $34M. A recent feasibility study came up with an NPV of $800M for the flagship project of this company. In other words: the company is currently selling at 1/24 of its asset value. Stupid cheap? Yes, stupid cheap it is.

The company is called Guyana Goldfields (GUYFF.PK), and the flagship project mentioned above goes by the name of Aurora. The latest updated feasibility study considered a gold price of $1300 as a base case and showed total reserves of 3.5M ounces at a grade of 2.74g/t. Additionally there are 6.5M ounces in measured and indicated resources and 1.8M in inferred resources. This feasibility study investigated a two-staged approach with a 5000 tpd open pit starter operation, and underground development and mill expansion to 10,000 tpd funded by operating cash flows. Tropical weathering has transformed the top layer into a saprolite which can be mined at a relatively low cost, making this staged approach a very attractive proposition.

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(mine plan taken from company presentation)

Capital expenditure for the open starter pit is calculated to $205M. Considering the current cash position of $122M above the company is more than half way there already. The base case results in an NPV (5%) of $800M and an IRR of 38%, both after tax. Even with an assumed gold price of $1000 the NPV remains respectable at $429M and the IRR comes out at 25%. Payback for the base case is given a tad over 3 years and mine life at current reserves is 17 years for production of 3.5M ounces. These are very robust project economics. Life of mine cash costs have been computed to $604 per ounce and all-in cash costs are given as $1041 per ounce.

At 94% for fresh rock and 97% for saprolite recoveries are very high and ore processing is straight forward using a standard CIL plant. An unpaved road links the Aurora project with the port of Buckhall which is owned and operated by the company and will be expanded as required. The proposed mine is situated next to a navigable river with ample of water at its disposal, but also making water management implementing a river dyke a priority. Power will be generated locally using diesel fuel.

Aurora is only a small speck in a huge prospective land package that offers blue sky potential for future exploration. A resource estimation exists for a deposit called Sulphur Rose and multiple further exploration targets have been identified.

The company is not wasting any time and seems serious about taking this project all the way to production. It is cashed up and engineering works are under way. Early construction activities are also being undertaken while financing for the remaining capex is being negotiated. The time line to production shown below has the open pit online by the start of 2015 followed by underground mining three years later.

(click to enlarge)

The Guyana Shield is a continuation of the West African Shield from a time when the two continents were still joined together in what is now termed as the paleoproterozoic super-continent Pangaea as shown in the map below. This super-continent started to break up about 200M years ago and continues to drift apart today, but certain common geologic signatures can still be identified across today's Atlantic Ocean, including the prospectivity for gold.

Guyana is English speaking, a democracy and a member of the Commonwealth. Mining legislation is transparent and modern. This free supplement to the Mining Journal on Guyana has a lot of detail on the country and its mining industry for interested readers. Aurora is fully permitted and Guyana Goldfields will pay 30% corporate income tax and a 5% or 8% royalty depending on the gold price.

The company is listed on the Toronto stock exchange under the ticker GUY and shares are available in the USA via the pink sheets. There are 126M shares outstanding (134M fully diluted) which are currently trading for $1.24 a piece. Institutions and insiders own almost 64% of the shares including the World Bank (IFC) with 5.5%. There are presently ten analysts following Guyana Goldfields.

Management has undergone some changes in recent times, but the present team gives a solid and experienced impression. CEO Scott Caldwell headed Allied Nevada (ANV) for several years and has more than 30 years of experience in building and operating mines. And the recently appointed COO Peter Galassi is based in Guyana and has over 15 years of mine development experience.

(click to enlarge)

There are two possible investment theses for investors with a high risk tolerance.

This is another company that has entered the orphan stage as defined so eloquently by Brent Cook. The exuberance of exploration success has gone and reality has kicked in. The down trend may continue for a while until catalysts stemming from mine construction provide reason for a break northwards. Wait for a bottom and ride the uptrend to production.
Of course, all could change if a major or mid-cap gold miner picks the project up. Aurora has all the trimmings that could create interest: a large reserve with a long mine life, production of 200,000+ ounces per year at sufficiently low production costs, fully permitted, a relatively secure legislative environment. Invest rather quickly in order to be on board should a takeout offer eventuate. Note: fellow Guyana gold explorer Azimuth Resources (TSX:AZH) has just received a takeover bid from Troy Resources (ASX:TRY).

Take your pick.