Guyana Goldfields cuts production guidance at Aurora

Shares of Guyana Goldfields (TSX: GUY; US-OTC: GUYFF) plunged 46% to $1.62 on news that the company has cut its 2018 production guidance and launched a review of the underlying resource model at its Aurora gold mine.

The company has hired engineering firm RPA Inc. to investigate the geologic controls and grade variability of the mine's Rory's Knoll deposit. Results of the review will be released in the first quarter of next year, and incorporated into Guyana Goldfield's 2019 guidance and its annual reserve and resource update. In the meantime, the company says it anticipates a revision to the life-of-mine production profile.

The guidance revision was announced on Oct. 30 in conjunction with the release of the company's third-quarter results, along with news that Patrick Sheridan had resigned from Guyana Goldfields' board of directors. Sheridan had served as executive chairman from June 2013 to July 2018, when the company eliminated the executive chair position to streamline the company's organizational structure under president and CEO Scott Caldwell.

Because grades have not rebounded as quickly as the company had expected in the fourth quarter, Guyana Goldfields is now forecasting production this year of 150,000-155,000 ounces of gold, down from the previous estimate of 175,000-185,000 ounces.

Management has also revised its cost estimates. Cash costs before royalties are now expected to come in at US$660-US$685 per oz., and all-in sustaining costs are forecast to run to US$1,025-$1,050 per oz. Cost of sales has been revised to US$1,030-US$1,055 per oz.

Despite improved mining rates, production and costs in the three months ended Sept. 30, the average head grade of 2.12 grams gold per tonne was lower than anticipated.

Since commercial production began in January 2016, mineralized material from the Rory's Knoll diorite had reconciled well with reserves, the company stated in a news release.

"Previous guidance assumed that the average head grade would rebound to +3 grams gold per tonne throughout the current quarter; however, based on results to date, that no longer appears likely."

"I recognize that this is disappointing news," Caldwell told analysts and investors on a conference call. "We're counting on Rory's Knoll performing as it has historically and unfortunately it's not performing in this particular area of the pit."

"I think we'll work our way through this," he continued. "I'm looking forward to the review by RPA. They are world-class professionals and I'm looking forward to their analysis, but I think the reconciliation is not as dire as it is, in this particular instance, on a global basis."

The Aurora gold operation sits 170 km west of Georgetown, Guyana. Credit: Guyana Goldfields.

The open-pit mine in northwestern Guyana, about 170 km west of the capital of Georgetown, poured its first gold in August 2015.

A feasibility study by SRK Consulting in early 2017 described four major areas of mineralization at the Aurora gold mine project: Rory's Knoll (which includes Walcott Hill East); Aleck Hill (includes Alex Hill North), Walcott Hill; and Mad Kiss (includes Mad Kiss West).

At that time, SRK estimated that about 60% of the ore tonnes at the project are sourced from Rory's Knoll.

Ron Stewart, who joined Guyana Goldfields in September as its senior vice president of technical services and corporate development, said on the conference call that because Rory's Knoll is basically a stockwork of mineralization hosted by a diorite plug, "the fact that there's some grade variation vertically isn't a big surprise to any of us."

"When you go from just over north of three grams to something less ... it's not a huge difference in terms of grade, but it's enough to create this situation."

On a positive note, Caldwell said, average mining rates have shown a further improvement of 17% from the third quarter, while the mill continues to perform well with throughput and recovery rates delivering above designed rates. He also noted that work has begun on the portal for an underground exploration drift.

"Unfortunately, we've got some review work to do on the resource model, and when that work will be completed in the next few months we will be reviewing the entire resource model at Rory's Knoll, so not just the open pit but the underground, as well," he said on the conference call. "I think that this is an isolated issue. I think that as we mine through this area we'll get back on track."

It's not the first time this year that the company has revised its production and cost guidance for its South American mine.

In mid-July, the company lowered its production guidance from 190,000-210,000 ounces of gold to 175,000-185,000 ounces. It also raised cash costs (excluding royalties) to US$535-585 per oz. from US$430-480 per oz., and AISCs from US$830-880 per oz. to US$945-US$995 per oz.

The company explained at the time that the revisions were necessary "due to the late arrival of the expanded haulage fleet and the later than planned mobilization of the contractor in the second quarter, which has deferred access to higher grade ore to the fourth quarter of the year."

At press time in Toronto, Guyana Goldfields' shares were trading at $1.79, up 10.5% on the day.

Over the last year, the company's shares have traded in a range of $1.29 and $5.42.

Guyana Goldfields has approximately 174 million common shares for a market cap of $311 million.