Since a boost which followed the release of a revised feasibility study earlier this year, Canadian mining company Guyana Goldfields has seen its stock value drop by 60% for 2013, according to a report in Forbes.
The losses have hit some major investors in the company, including the massive Boston hedge fund firm run by Seth Klarman, which is biggest shareholder with 19.7% of Guyana Goldfields, a stake recently worth about $30 million. The second biggest investor is Franklin Resources (Templeton), which owns 9.4%.
The price of gold has declined over the past months with the price at US$1284 per ounce on Thursday, according to Reuters. Guyana Goldfields had based its projections with gold at a certain price and it is not clear what impact the falling gold price would have on the company’s plans.
Earlier this week, Guyana Goldfields had its price target trimmed by Scotiabank from C$4.00 to C$2.00 in a research note issued to investors on Monday.
No official of the company could be reached yesterday. However, based on an investor presentation earlier this month, the company appears to be sticking to its plans released after the updated feasibility study. The company had said that its Aurora Gold project will cost US$205 million to build, less than half an earlier estimate of US$525 million for a mine with a life of 22 years and total production of nearly 4.4 million ounces of gold. The new mine plan calls for production of 3.29 million ounces of gold over an initial 17-year mine life at an operating cost of US$527 an ounce. Average annual gold production over the life of the mine is expected to be 194,000 ounces, averaging 231,000 ounces a year over the first 10 years with production peaking at 349,000 ounces in 2020.
The company had said commercial production is expected to commence in quarter one of 2015.
It had earlier said that commercial production would start in quarter two of 2014. Gold production will be staged, with initial open pit production of 5,000 tonnes per day from the Rory’s Knoll deposit and expanding to 10,000 tonnes per day in early 2018 when underground mining commences.
Meanwhile, the Forbes report said that Guyana Goldfield’s stock has plunged by more than 60% in 2013 and is now changing hands for Canadian $1.24. “It might be surprising for some market watchers to learn that Guyana Goldfields’ biggest shareholder is the Baupost Group, the massive Boston hedge fund firm run by Klarman. Baupost owns 19.7% of Guyana Goldfields, a stake recently worth about $30 million,” the article said.
It stated that Klarman, a billionaire hedge fund genius, is one of the most revered money managers of his generation—a value investor who likes to steer clear of controversy and public attention, keeping his head down and concentrating on his investments. “His track record and reputation are stellar, which makes it a little strange that Baupost has gotten behind Guyana Goldfields and some other long shot, some might even say iffy, gold mining ventures with penny stocks and high executive pay. These companies often make sure to point out that Baupost is a major investor in their shares in investment presentations,” the Forbes article stated.
It noted that shares of gold mining companies have been hammered this year as the price of gold has tumbled. Most gold mining companies, it pointed out, are facing a serious cash crunch as the economics of their industry get upended.
The article said that Klarman’s gold mining investments have also been clobbered, losing between $150 million and $200 million in value in 2013 but this was hardly an insurmountable loss since Baupost manages $28 billion. “Still, Klarman’s gold mining losses, which have not received any public attention this year, are among the biggest to have hit a major U.S. hedge fund this year,” the article said.
It noted that Baupost’s gold mining portfolio is a relatively modest part of its main hedge fund’s overall portfolio. It’s designed to protect client capital, including purchasing power in an inflationary environment, and perform well over the long-term when other investments in the portfolio may not be performing well, according to someone familiar with Baupost’s thinking. Forbes noted that Baupost appears to be sticking with its gold mining investments even though gold miners have performed very poorly for some eight years.
