In the present series of columns I had introduced oil and natural gas exploration and development as the first upside potential/achievement for consideration. This upside potential meets the criteria and features, which I had argued as minimally necessary to qualify for this particular determination. It is important to recognize that, in my view, oil/natural gas is treated as an upside potential despite previous unsuccessful efforts to promote its commercial production. There are several examples of failed land and off-shore exploration efforts, including those of well-known companies such as the US-based Hunt Oil Company (a land-based effort) and the French-based Company, Total (an offshore-based effort).
The upside potential of commercial oil/natural gas production needs to be located in the broader context of efforts to develop sustainable energy supplies for Guyana. From this perspective, exploration of oil and natural gas should therefore, be linked to efforts to develop alternative non-carbon based energy supplies. The major effort in this direction is to bring the Amaila Falls hydropower project on-stream. However, I had previously classed this as a downside risk and not an upside potential.
Why?
Why was this done? The answer is straightforward. In the case of the oil/natural gas exploration this is being led with external private equity capital. External private investors are risking their resources to secure a private benefit. However, in the case of the Amaila Falls project, the Amaila Falls Road to the project-site is being financed by the State and executed through a private Contractor. I have already indicated how far behind schedule this contracting-arrangement has fallen, thereby providing unacceptable risk of loss for public resources.
Readers need constantly to keep in mind that there are considerable risks involved in the exploration and development of commercial oil/natural gas production in Guyana. The firms involved therefore, need to be quite liquid, as the capital requirements for exploration and pre-production works are large in relation to the size of the Guyana economy.
Moreover, while I have indicated a likely favourable-upward trend in oil prices over the near-to-medium term, rapid adverse changes in these prices can still occur negatively impacting on share prices, cash reserves and credit ratings of the firms involved in exploration. To these risks one should add the risks of 1) a change in Government over the election cycle 2) changing government regulations, and 3) changes to the fiscal regime applicable to their operations.
Of final note, it is of more than passing significance that, in the context of CARICOM, the Government of Guyana has already approached the Government of Trinidad and Tobago, the largest oil and natural gas producer in the Region, to seek advice, support, and technical assistance when the go-ahead for commercial oil/natural gas is given (see GINA January 17, 2011).
Upside Potential ― Gold
The second upside potential/achievement I wish to advance is the coming on-stream of large-scale gold mining. It is very ironic that, centuries ago, a scramble for gold fuelled the early European discovery, occupation, plunder and settlement of Guyana. Yet, after the first decade of the 21st Century, I am still portraying gold as an upside potential achievement! While Guyana is supposed to be the location of the mythical city of gold ― El Dorado, our output of gold over the centuries has never come close to mythical proportions. However, I treat Guyana Goldfields Inc. as the best placed large scale gold exploration outfit likely to come on-stream over the near-to-medium term.
A month ago this company pledged to open shortly the largest gold mine in Guyana. This is touted to be the product of investing more than US$826 million over the life of the project. The company is Canadian-based and has been exploring/developing/operating in Guyana since 1996. It has two main foci for its operations in Guyana: the Aurora Project, and its Aranka Properties.
The Aurora gold project is the larger of the two by far, with estimated resources of 6.7 million ounces. This is made up of Measured and Indicated resources of 5.34 million ounces and Inferred resources of 1.33 million ounces. It has been promised that this resource-estimate will be updated by the company in August of this year (2011).
The Aranka Properties have Inferred resources of 460,400 ounces at Sulphur Rose. This estimate will also be updated by August 2011.
The Aurora project is located along the banks of the Cuyuni River, and is planned to come on-stream in 2014. The Company states that this will be the first operating underground mine in the Guyana Shield. This prediction follows from baseline exploration works the Company has concluded over the past two to three years. These cover such basic areas as, radiometric, geophysical soil/sediment sampling, trenching, and auguring.
There are two points worth noting. First Guyana Goldfields Inc is very proud that it is supported by the International Finance Corporation (IFC) of the World Bank Group. In March 2006, the IFC had acquired 1,730,000 common shares in the Company. Its total subscription cost was US$7.612 million.
Second, the company plans to utilize best-practices to its gold mining operations: exploration, development and processing of gold finds at the project sites. The company projects this would create opportunities for a reduction of per unit cost of production and delivery of gold. When this is combined with advances in marketing and financing techniques for mining operations, this could certainly increase the potential commercial viability of these projects.
Next week I shall wrap up this discussion of commercial large-scale gold production and then turn to consider the third upside potential, which is none other than the re-emergence of the manganese industry after four (4) decades of dormancy.
