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The Canada-based exploration and development company achieved financial close and obtained its first drawdown in relation to a US$185-million project finance facility.
The Canada-based exploration and development company was able to secure a US$185-million project finance facility for its Aurora gold project at the start of September, and on Monday, Guyana achieved financial close and obtained its first drawdown in relation to that agreement.
With the completion of the facility, the development and construction of the Aurora gold project in Guyana is fully funded. The facility consists of two tranches, including a tranche 1 facility of $150 million and a tranche 2 cost overrun facility of $25 million, and has a maximum term of eight years.
Reacting positively to the news, Guyana Goldfields’ president and CEO, Scott Caldwell, said, “[w]e are pleased to have fulfilled all conditions related to the Facility in order to obtain first drawdown,” he said in a statement.
Financing success
The company had to go to market to secure the entirety of its financing — it was required to fund an additional $33 million as a condition of the agreement. However, Guyana checked that box this summer when it not only completed the required private placement, but raised the offering to $44.4 million “due to exceptional interest.” It closed the increased financing in just a few weeks.
Furthermore, it’s worth noting that the loan facility comes without any gold hedging requirements or similar provisions — a key consideration given the current gold price.
To top it off, Guyana’s minister of natural resources and the environment praised the project back in September, suggesting strong local government support for Aurora. “This level of investment from a large scale mining operation is important to the growth and development of the Guyanese economy,” he said in a statement. “The Government of Guyana through the Ministry of Natural Resources and the Environment has been working with Guyana Goldfields to ensure that their undertaking is realized and will continue to work with this company throughout the lifetime of this project.”
Aurora economics
Guyana released an updated feasibility study for Aurora in January, indicating a $800-million after-tax net present value (NPV), a $205-million initial capital cost and a 38-percent after-tax internal rate of return (IRR) with a payback period of 3.4 years. Aurora is slated to have a mine life of 17 years.
That’s all considering a base-case price of gold of $1,300 per ounce, but with a life-of-mine average operating cash cost (including royalty) of $527, the economics of the mine would stack up even if gold fell to $1,000. In that case, operating costs would fall to an average of $473 per ounce, and the NPV and IRR would hold up around $429 million and 25 percent, respectfully.
Some have suggested that companies able to weather the storm while maintaining leverage to a rise in the gold price are worth looking at, and Guyana certainly seems to fit that bill. In any case, investors are certainly taking notice — the company is up an impressive 81 percent year-to-date in spite of this year’s market conditions.
What’s next?
With the funding side of things largely taken care of, investors can look forward to the Aurora project moving ahead quickly. “The construction schedule is approximately 40% complete and we currently have over 500 people working at site, majority of which are Guyanese nationals, with this rapidly expanding to 900 people by the end of the year in order to support construction efforts and our timeline,” Caldwell said. The company is scheduled to meet commercial production at Aurora by mid-2015.
At close of day on Monday, shares of Guyana were up 4.56 percent, trading at $2.98.
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.
