Here is a near term gold producer for your precious metals portfolio:
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.
The company is called Guyana Goldfields (GUY.TO), and the flagship project mentioned above goes by the name of Aurora. 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.
The improved mine plan produces 3.29 million ounces of gold over an initial 17 year mine life at an operating cash cost of US$527 per ounce (including royalty). Average annual gold production over the life of mine is 194,000 ounces, and averages 231,000 ounces per year over the first ten years. Gold production peaks in 2020 at 349,000 ounces. Commercial production is expected to commence in Q1 2015.
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.
Financials @ 5% Discount Rate Gold Price (base case) US$1,300/oz Production Start Date Q1 2015 Mine Life (LOM) 17 years Average Mill Throughput (initial) 5,000 tpd Average Mill Throughput (extended) 10,000 tpd Mine Depth 1,037 metres Strip Ratio 4.7:1 (waste to ore) Average Gold Grade (mill head) 2.7g/t Gold Recovery (saprolite) 97% Gold Recovery (fresh rock) 94.4% Average Annual Production (LOM) 194,000 oz/yr Average Annual Production (first ten years) 231,000 oz/yr Peak Production (year 2020) 349,000 oz Total Gold Production (Recovered Gold) 3,291,000 oz Average Operating Cash Cost w/Royalty (LOM) US$527/oz Initial Capital Cost US$205 Million Pre-Tax NPV US$1.12 Billion After-Tax NPV US$800 Million IRR (After-tax) 38% Payback (After-tax) 3.4 years
The project is 100% owned by Guyana Goldfields, fully permitted and in a mining friendly jurisdiction. With an experienced management team at the helm and enough cash in the bank to get through the current downturn in commodities markets, this looks like an excellent speculation in a wolrd rife with money printing.