Guyana Goldfields Is A Ripe Takeover Candidate

| About: Guyana Goldfields (GUYFF)

Capital cost inflation coupled with a few of downgrades have created a spectacular opportunity to acquire a company with a great deposit.

Guyana Goldfields Inc. (OTCPK:GUYFF) is a junior gold explorer in Guyana with 100 percent interest in the Aurora Gold Project. The deposit exhibits characteristics of mesothermal gold deposits, similar to those found in West Africa and is located in a largely forested uninhabited region of the country.

Aurora will entail an open pit mine with a life of 9 years, which is expected to start production in late 2014. The open pit mine will finance and be followed by the underground portion of the project which is expected to commence production in 2024 through 2035. This strategic asset will have a significant contribution to Guyana's GDP and will generate many jobs for the local population.

On November 18, 2011 the company announced it signed a mineral agreement with the Guyanese government and received the mining license needed to commence mine construction. This key event puts the company in play as now a potential suitor -- IAMGOLD (IMG) -- can confidently determine the value of the project with variables such as royalties and taxes clearly known and fixed. The mine is currently the only large-scale licensed mine in development in Guyana and will provide the infrastructure to support additional discoveries which may be found in the future on the same concession.

The project seems to have excellent metallurgy with gold recoveries of 91-97 percent for tested sulphide samples and 97-98 percent for oxide samples (according to the April 2011 NI-43-101 Report). The high recovery of the metal coupled with the project's high grade tonnage, makes the project economically attractive and less sensitive to gold prices - an attribute producers favor when evaluating projects.

According to the company, when using WTI oil price of $110.94/bbl and a gold price of $1,775/oz, the Aurora Project will generate an after-tax NPV of $1.16 billion and an after-tax IRR of 23.6 percent. Of course, the current estimate of the NPV takes into account solely the estimated recoverable gold classified as Proven & Probable Reserve which amounts to 4.359 million ounces.

A suitor will take into account the additional 1.351 million ounces in the Measured & Indicated category, grading 3.83 grams per tonne and 1.17 million ounces in the inferred category, grading 3.63 grams per tonne. These resource categories were completely ignored when the NPV was estimated because not enough information exists to categorize the ounces as Proven or Probable reserves. At the same time these ounces can increase the ounces in the ground (and therefore the NPV) by 29 - 54 percent.

Therefore, with a measured and indicated resource of 5.71 million ounces of gold grading 3.83, the Aurora project presents a high grade attractive project to a senior or mid-tier producer looking to replace or grow reserves. These types of deposits are becoming harder and harder to find and costlier to explore for. In addition, with an inferred resource of 1.17 million ounces grading 3.63, the project's growth potential is considerable at depth.

Disclosure: I am long OTCPK:GUYFF. I am long Guyana Goldfields on the TSX.

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