Palisade Research - Thu, Mar 16, 2017

Amarillo Gold Corp (V.AGC; AGCBF) - Post-Tax IRR Of 35% At $1,200 Gold Price

picture of a wooden box with Mara Rosa core samples

Amarillo Gold Corp (CVE:AGC, FRA:72A, OTCMKTS:AGCBF)

  • Current Price: C$0.38
  • Shares Outstanding: ~80.3 million
  • Market Capitalization: C$30.5 million
  • 52-Week Range: C$0.06 - C$0.68
  • Cash: ~C$3.3 million

Original write-up here

Amarillo's updated PFS propels its flagship project, Mara Rosa, into the top percentile in terms of IRR in its comp group.

The PFS indicates that the Mara Rosa project will be a single open-pit mining operation with a rapid payback of 2 years, and robust economics, many of which were improved upon since the 2011 PFS. Some key economic metrics improve include: currency devaluation from 1.9 to 3.2 USD/BRL; reduced strip ratios from 8.2:1 to 4.5:1; low-grade stockpiling; optimized pit scheduling, and increased gold reserves from 945,000 to 997,563 ounces.

PFS Table showing pre-feasibility study results for 2011 versus 2017

The PFS throttles average production in the earlier years, and also proposes the mine to have an average head grade of 2 g/t for the first three years. This will be especially attractive to debt providers, with the bulk of the cash flow in earlier years, mitigating a lot of the payback risk.

The greatest improvement was the introduction of a contract mining scenario, which was selected as the base case due to a decrease in capex from $184 million to $148 million, and an increase in post-tax IRR from 26.6% to 35.2%.

Amarillo's IRR is significantly higher than its international developer peers, which average 25% at $1,200 gold. We once again want to highlight how undervalued Amarillo currently is, trading at $33 per reserve ounce versus a peer comp of $70. In terms of resources, Amarillo trades at $13.52/oz., significantly lower than its Brazilian counterparts, who average $50.11/oz.

Lastly, Amarillo is currently trading at x0.13 its NAV, lower than its comp average of x0.40:

NAV Bar Chart showing trading values versus net asset values of Amarillo's Mara Rosa and other international developers

Across all metrics, Amarillo is undervalued, and the company continues to alleviate risk by achieving key milestones.

The sentiment for mining in Brazil is definitely increasing with Belo Sun's Volta Grande recently receiving its installation license, the same license Amarillo is currently progressing towards. Volta Grande is almost twice the size of Mara Rosa; is in an environmentally sensitive area; and requires the relocation many families. The license provides the authorization to begin construction, however, is almost a formality after the preliminary license is granted, which Amarillo obtained in May 2016.

Amarillo in itself is undervalued; Mara Rosa yields attractive economics and management has done a great job de-risking it. The company was our first investment of 2017, and we could not be happier with its progress.

Palisade Global Investments Limited holds shares of Amarillo Gold. We receive either monetary or securities compensation for our services. We stand to benefit from any volume this write-up may generate. The information contained in such write-ups is not intended as individual investment advice and is not designed to meet your personal financial situation. Information contained in this report is obtained from sources we believe to be reliable, but its accuracy cannot be guaranteed. The opinions expressed in this report are those of Palisade Global Investments and are subject to change without notice. The information in this report may become outdated and there is no obligation to update any such information. Do your own due diligence. publishes interesting contributor articles in addition to its own content. We have not verified any of the above details.

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