UPDATE: Brad Humphrey of Raymond James puts on a brave face, but is right to highlight the thin-looking base case IRR as a problem, methinks. Here's the cover letter to the PDF RayJames just sent out (and I have no idea where you could possibly get a copy of the full PDF, oh no no no no...)
RATING Outperform 2
Closing Price C$8.40
Event: Guyana Goldfields released the results of its feasibility study for the Aurora project in Guyana.
Analysis: While overall the results were not as robust as we were anticipating (see table below), there remain areas for some optimization. Ultimately, with the known scarcity of projects producing at a rate of 250koz per year at cash costs of <$600/oz (Aurora study suggests ~$520/oz), in a geopolitically stable environment, Aurora remains an attractive takeout (our primary thesis).
Points to Note:
* While the initial capex is modestly higher at $525 mln, this is sized for a 9,500tpd throughput instead of the planned 8,000tpd. Post-feasibility we anticipate the capex could decline ~10%. The 9,500tpd CAPEX is roughly 16% higher than we were forecasting, resizing to 8,000tpd the CAPEX comes in around 6% higher than our forecasts.
* The after tax IRR (at $1,300/oz gold and $100/bbl oil) comes in at 12.7% - it appears this IRR includes the 9,500tpd capex. We expect the revised capex could add ~1-2% to the IRR. We were hoping for something approaching 20%. After tax IRR at $1,775/oz and $110/bbl oil stands at 23.6%.
* The sustaining capex increase is significant - ~$300 mln vs our $181 mln.
* The decrease in underground grade is also a concern from the resource grade of 4g/t to the feasibility grade of 3.3g/t.
* We assume an additional ~1.5Moz LOM given, we believe, the potential to increase the resource is good.