Amarillo Gold (AGC) - Focus is on Project Finance for April 2022
Amarillo Gold Corp. is an emerging gold developer focused on good governance and responsible value creation. The company is currently advancing two gold projects in Brazil, the Posse Gold Project and Lavras do Sul Project.
We met with Mike Mutchler, President, and CEO, Amarillo Gold. Mike has a successful background in project management and business turnaround in Canada and Latin America. He previously served as a CEO for Largo Resources, building a Vanadium mine and mill. He is a fifth-generation miner with a B.Sc. in Mining Engineering, an MBA, and an Executive Juris Doctorate degree. He also possesses a Chartered Directors Certificate.
Amarillo Gold is a mining and exploration company with major operations in Brazil. The company was founded in 2004 and is headquartered in Toronto, Canada. The company is listed on the Toronto Stock Exchange (TSX-V: AGC).
Amarillo Gold's flagship project is the Posse Gold Project, located in central Brazil. This project was acquired in 2004, and It features a 1Moz open-pit reserve supply and is currently in the development stage. The previous management carried out 30,000m drilling at the site.
The company's second project is called Lavras do Sul, an exploration stage asset with 22 prospects centered on historic gold workings. Acquired in 2006, this site features a 500,000oz resource with a potential for a multi-million dollar district. The exploration program is currently underway. The previous management carried out 20,000m drilling at the site.
The Posse Gold Project
At the Posse Gold Project, the company uncovered a 24km long structural trend, where 23km has been identified through a variety of assessments including aerial, IP, and magnetic surveys.
The company is also focusing on the expansion of its Mara Rosa property and getting it ready for development. This site has had limited drilling in the past and the company started stepping out 2 years back, the company discovered 6 holes at the Pastinho site where 10 trenches were carried out from the surface. This led to the discovery of a zone with a 1.5km striking length at a depth of 150m.
This area features a strong ore zone that is open to striking and the company seeks to expand this zone in 2021. The company continues to report holes along with the strike and down dip. Infilling drilling has also commenced on the site. Towards the north of Posse, the Estrela del Norte property features a historical pit where limited mining was done in the early 90s. This is a strong exploration target for the company.
Management and Holdings
Amarillo Gold has a team of experts with decades of experience in mining along with extensive construction and operational experience in Brazil. The company made major management and leadership changes in 2017 and the new team has been running the company for the past 4 years. The company recently appointed a new General Manager.
The board and the management account for 6% of the company's holdings. US-based Baccarat Trade Investments owns close to 20% of Amarillo Gold and Eric Sprott owns 18% of Amarillo Gold. The company's institutional investors include 683, Solas Capital, Brigade Capital, Rougher Gold, and Sun Valley Gold. 26% of the company's shareholders are institutional investors, while 32% are retail investors.
Capital Allocation and Financing
Amarillo Gold raised CAD$57M in August 2020 that was utilized towards land purchases, placing equipment orders, and expanding detailed engineering work at their sites. The company has a liquidity of $40M and a market cap of $120M.
The company took a $5,000 gold loan from a large shareholder in 2014 that was recently paid off. A 1.75% NSR (Net Smelter Return) was sold on the Posse property to Royal Gold in 2018 for $2.8M. This capital was utilized towards overcoming the company's legacy issues and expanding its development and exploration programs.
Amarillo Gold currently has the funding which will fund the start of the construction phase and is currently looking to raise capital for construction finance. The company is also considering financing through banks once their operations are in motion. They are looking towards a 2-year payback plan.
The company is focusing on an aggressive marketing strategy to grow its business and raise additional capital. They are seeking to raise $120M for exploration, operations, and construction financing. RMS Construction is the company's construction debt advisor.
Feasibility Study Findings
The company launched a feasibility study in 2019 which was published in May 2020. The company has received the construction permit and is currently looking to advance the development and expand its resources.
The team discovered satellite ore bodies called Pastinho and Araras, located between 4-8km of the Posse Gold Project which currently has a 1Moz reserve. The company seeks to double the resource which will help extend the mine life and improve the project's NPV (Net Present Value). Towards the south of the project, the company has a 500,000oz resource which has the potential to become a multi-million-ounce district through a hub and spoke arrangement.
The results of the feasibility study show a potential supply of 100,000 ounces per year production over 10-year mine life. As per the study, a USD$1,400 Gold price provides an NPV of $183M. Taking the current market prices into consideration, the NPV grows to $360M with a post-tax IRR (Internal Rate of Return) of 25% at a 2 year payback period. The company has 2 major drill operations planned in 2021 each with a 5,000m target. This will help in identifying the potential size of the satellite targets.
At the Posse Gold Project, the company is working on identifying the largest ore body and building a plant next to the site. The revenue generated from this site will then be utilized towards advancing the Lavras do Sul project.
At the Lavras do Sul project, the company is looking to grow the resource, turning it into a second development front.
Amarillo Gold is looking at potential M&A through the acquisition of small producers at the front end and is open to mergers in the future. The company is in talks with multiple institutions and the company wants to ensure the best end result for its shareholders.
Amarillo Gold is looking to acquire a Brazilian small producer for its front end. They have been approached by several South American and North American producers for potential collaborations. The company's main focus lies in advancing the development at the Posse Gold Project and expanding the exploration at the Lavras do Sul site.