Guyana Goldfields 2018 Q4 Earnings – Strong Performance, But Questions Remain


In our previous Guyana Goldfields [stock_market_widget type="inline" template="generic" color="default" assets="GUY.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] primer, we said going into their 2018 earnings report we were looking for clarity on 3 main catalysts:

  1. Resource model update
  2. Underground mine development progress and comments on the relationship with the Guyanese government
  3. Acknowledgement of our plan to deal with mud-slinging dissidents

While some of these items were cleared up, others were not.

Below we provide our take on their performance and what opportunities we see ahead.

Bottom Line

Model Update

Guyana provided investors with an update to their Aurora LOM plan and model. While they indicated a full 43-101 can be expected within 1-3 days, the main changes from the model update are summarized as follows:

  • Measured & Indicated Mineral Resources: 1.77 Moz decrease (29%)
  • Inferred Mineral Resources: 0.34 Moz increase (19%)
  • Mineral Reserves: 1.51 Moz decrease (38%)

For background, in the Fall of 2018, Guyana had reported that they were experiencing lower grades than expected based on their model and attributed this to some form of contamination where high-grade domains were allowed to influence lower grade domains. To correct these issues they hired an independent engineering firm to provide them with this updated resource model.

As stated previously, we believe investors have already priced in this decrease in reserves and resources at the Aurora mine. This update removes one of the barriers to Guyana Goldfields stock price recovery, but two still remain.

Underground Mine Development

During their call with shareholders, management stated they will be working through the permitting process with the local Government. The updated LOM plan was the first step, and beyond that, it’s a process that centres around the results of the underground development work.

They wouldn’t provide any estimated timelines on the permitting process as there are no guarantees when working with Governments. We see this restraint as a prudent decision that should help build trust in the long term.

However, they also failed to acknowledge any of the issues that arose between miscommunications with the Guyanese Ministry of Natural Resources, as well as the comments by the Head of the EPA.

These are obviously important relationships for any company looking to develop operations in a foreign country. While their guidance on the mine development process was reassuring, the lack of clarity on the origins of the miscommunications and the status of the relationship has failed to clarify the situation.


Apart from shouldering the blame for the resource model issues onto Former Executive Chairman, Patrick Sheridan:

The previous 2012 resource model, developed under former Executive Chairman, Patrick Sheridan’s oversight, overestimated the average grade at Aurora.Guyana Goldfields Presentation

Management failed to acknowledge or provide clarity on any of the accusations being brought forward by the group of dissident shareholders.

While the main focus of the earnings reports should be on their yearly performance, the accusations and steps being taken by the group of dissidents could have a significant effect on Guyana’s stock price.  By effect, investors deserve more clarity on the subject.

At this time we see this as a significant factor limiting Guyana’s stock price and are seeking more information from the company.

Our Take

Before earnings, we were excited about the value opportunity Guyana presented and were hoping for some big catalysts to emerge from their reporting. However, we feel management hasn’t provided us nearly enough information at the current juncture.

As discussed below, operationally they came through with solid Q4 results, removing questions around their ability to deliver. With their resource model updated and operations in full swing, there is still the potential for a significant value play.

While their cost profile and heavy dependence on the unpermitted underground mine are concerning, we see these as short-term hurdles.

However, larger concerns remain regarding their plan (or apparent lack thereof) to deal with the dissident shareholders. While market reactions were mixed today, we see ourselves moving to the sidelines until more clarity is provided.

In the meantime, Capital 10X will continue our search for other undervalued mining companies. We have become particularly interested in other opportunities within Guyana as we see the region as underdeveloped. The geological formations in the region mirror those found in Africa and are rich in resources and hold significantly reduced political risk. Stay tuned for more insights other potential 10 baggers.

2018 Operational Overview – Gold Production Satisfies

Guyana delivered steady Q4 performance, meeting their revised yearly gold production guidance of 150,450 oz, on the back of a quarterly gold production of 42,750 oz. This represented flat quarter over quarter production.

This was an important quarter for the company as their operating capabilities were under the microscope after a series of delays they attributed to issues with the resource model and contractor mobilization. With back-to-back solid production numbers, the company appears to be on the right track.

Revenues saw a slight quarter-over-quarter dip, however, this can be attributed to less gold ounces being sold. Additionally, earnings from mine operations fell 45% on the back of increased depreciation costs that drove up the cost of sales. Overall they finished the year with cash costs and AISC of $712 and $1097.

Their balance sheet remains strong, where they hold a cash position of $82 million, with only $40 million of debt. Additionally, for the 12th consecutive quarter, their operations were cash positive.

In February of this year, they commissioned the expansion of a mill to enhance production capacity. This should lead to improved recovery and a 10% increased throughput moving forward.

2019 – The Tale of Recovery

After a rough 2018, Guyana Goldfields is hoping for smooth sailing through 2019. Their guided gold production of 152,500 oz, flat year over year, suggests they have no intention of setting lofty expectations for investors and are focused on building trust.

Their guided cash costs and AISC of $825 and $1200 would represent increases of 14% and 9% year over year. While this is expected given the recent grade reductions, these are numbers that much be watched closely as they report production and earnings throughout 2019. Any signs that these numbers are rising will suggest they don’t have a handle on the decreased gold grades.

While they are carrying out various exploration activities in the region, their main focus is on the development of the underground mine at Aurora. After obtaining the necessary development permit, they now need to carry out various tests and work through the permitting process with the government.

Evan Veryard has a Bachelor's of Chemical Engineering from McGill University and a MaSc. of Chemical Engineering from RMC. He has over 6 years of research experience focusing on industrial materials. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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