Marc Davis of BNWNews profiles Amarillo Gold, a company that is finally
poised to capitalize on a resurgent gold market.
It's Buddy Doyle's day of reckoning-finally. At last, he knows that his
big gamble is going to pay off.
His small gold exploration and development company, Amarillo Gold
Corp. (AGC:TSX.V), just got preliminary approval to build a gold mine in
Brazil.
This now sets the stage for the construction of a mine, which requires one
more permit. In other words, Amarillo Gold is finally poised to capitalize on
a resurgent gold market.
For Doyle, this milestone development isn't just about technically derisking
a gold project that he's been developing for over a decade. It's also a
triumph of the "quality over quantity" mindset that motivates him.
Such thinking makes him something of a contrarian in the gold exploration
business. Most geologists are obsessed with so-called "elephant
hunting," which involves trying to find deposits that are upwards of 10
million ounces in size.
However, Doyle has already been there and done that. His claim to fame is
being integral to an exploration team that discovered the giant
45-million-ounce Lihir gold mine in Papua New Guinea, by far one of the
biggest mines ever found.
That was in his younger days, when he was as recklessly adventurous as he
was ambitious, he says. So he remained undaunted by bouts of malaria, foot
rot and even a life-threatening helicopter crash as he slogged through jungle
terrain in search of the geological jackpot that became Lihir.
Now in his 50s, he says he's much more of a cool-headed pragmatist. Which
is why he's happy to focus on grooming a far more modestly sized gold deposit
in central Brazil, near the town of Mara Rosa.
It contains a little over one million ounces. But its biggest selling
point is that it promises to become one of the lowest-cost mines in the
world. And it can be monetized at a fraction of the cost of any big-league
gold discovery, like Lihir.
Magic in the Metrics?
In fact, the Posse deposit also has all the right characteristics and
operational logistics to become a very lucrative gold mine, which is a
considerable rarity these days, Doyle says.
A 2011 prefeasibility study (a preliminary blueprint for a mine) that was
independently conducted for Amarillo computes production and refining costs
of around US$524/ounce (US$524/oz).
Since then, Brazil's currency has dropped around 50% in value against the
Canadian dollar. At current exchange rates, this means that Amarillo's mining
costs would be significantly lower than the original US$524/oz estimate.
By comparison, most mining companies-big or small-are typically paying
around US$1,200/oz to extract gold. This helps explain why most of them have
been losing money in recent years.
So exactly how is Amarillo Gold planning to seriously buck an industry
trend by keeping costs to an absolute minimum?
First, the deposit is relatively high grade (averaging 1.67 grams per
tonne) considering that it's near the surface. This means that it can be
inexpensively mined as an open pit (a quarry-like operation).
An average of 125,000 oz gold per annum is expected to be mined this way
for the first few years of the mine's life. This scenario offers a relatively
fast anticipated payback on capital costs of only three years.
Low-Hanging Fruit
Amarillo represents one of the ripest plums among the ranks of aspiring gold
miners in Brazil. With the company's projected low operating costs, putting
Posse into production represents a low-risk, high-reward opportunity and
could be a huge competitive advantage to a potential suitor in today's
marketplace.
Derisked gold projects like Posse represent rich veins of opportunity for
supply-hungry major gold producers. In other words, they can be
commercialized relatively quickly and inexpensively. And that's a big deal
for gold producers that are increasingly focused on generating more near-term
flow without committing to huge cash outlays.
Posse's appeal to prospective suitors is further sweetened by the fact
that it is located in a well-established mining district. There are several
relatively proximal mines, including Yamana Gold Inc.'s (YRI:TSX; AUY:NYSE;
YAU:LSE) Chapada mine (35 kilometers away), which has a mill to process ore
from Posse.
There's also plenty of other regional infrastructure in place to support a
new mine. This includes a hydroelectric power grid, a skilled labor force and
even a freeway. All of which promises to minimize projected capex (mine
construction) costs, as well as operational expenditures, at Posse.
It would, therefore, make sense for one of the region's big gold
producers-namely Kinross Gold Corp. (K:TSX; KGC:NYSE), AngloGold Ashanti Ltd.
(AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE) and Yamana Gold-to gobble up Amarillo.
Savoring the Moment
For now, Doyle is content that Amarillo has finally cleared all the
regulatory hurdles that have held up Posse's further development for the past
several years.
"In the process of making Posse shovel-ready, we've demonstrated that
we can be a good corporate citizen and a conscientious environmental
steward," he says. "We're also proving Posse's suitability to
become a very low-cost operation with sizeable annual output and some of the
best profit margins in the industry."
As for whether Posse's for sale: "No, it isn't," Doyle says.
Well, not yet, he concedes. His company plans to do some more drilling to
hopefully increase the size of the ore resource. And adding additional ounces
in the ground seems like a foolproof idea in a rising-tide market for gold
prices.
Marc Davis is the editor and publisher of BNWNews. As a former floor
trader, investment industry research analyst, journalist at one of the
world's first digital financial news agencies and CBC television business
reporter, Davis has a deep background in news media and the capital markets.
Disclosure:
1) The following companies mentioned in the interview are sponsors/billboard
advertisers/special situations clients of Streetwise Reports: None. The
companies mentioned in this article were not involved in any aspect of the
article preparation. Streetwise Reports does not accept stock in exchange for
its services. The information provided above is for informational purposes
only and is not a recommendation to buy or sell any security.
2) Marc Davis: I or my family own shares of the following companies mentioned
in this article: Amarillo Gold. I personally am or my family is paid by the
following companies mentioned in this article: None. My company has a
financial relationship with the following companies mentioned in this
article: None. I determined which companies would be included in this article
based on my research and understanding of the sector. Statement and opinions
expressed are the opinions of Marc Davis and not of Streetwise Reports or its
officers. Marc Davis is wholly responsible for the validity of the
statements. Marc Davis was not paid by Streetwise Reports for this article.
Streetwise Reports was not paid by the author to publish or syndicate this
article.
3) The article does not constitute investment advice. Each reader is
encouraged to consult with his or her individual financial professional and
any action a reader takes as a result of information presented here is his or
her own responsibility. By opening this page, each reader accepts and agrees
to Streetwise Reports' terms of use and full legal disclaimer.
4) From time to time, Streetwise Reports LLC and its directors, officers,
employees or members of their families, as well as persons interviewed for
articles and interviews on the site, may have a long or short position in
securities mentioned. Directors, officers, employees or members of their
families are prohibited from making purchases and/or sales of those
securities in the open market or otherwise during the up-to-four-week
interval from the time of the interview until after it publishes.