South America has been a major beneficiary of the 2000s gold bull, party to some big discoveries by the mining companies flocking there. Some of these discoveries have already been developed, with top-three producers Peru, Brazil, and Chile for example seeing their collective gold output increase by 25% since 2001. And some are in the pipeline, with production on the horizon.

These pipeline projects come in all sizes and are scattered across the continent. Naturally there are many located within the borders of the top three. But many reside elsewhere, including such exploration hot spots as Argentina and Colombia. One of South America’s finest development-stage projects belongs not to the aforementioned major countries though. It resides in Guyana, a small sparsely-inhabited nation that many folks are unfamiliar with.

The few people who have heard of Guyana are the ones who recollect a key event in modern US history. But I’m sure the Guyanese aren’t thrilled that the event defining their country was the infamous Jonestown massacre, an ordeal that involved the only-ever assassination of an active-duty US congressman.

Also in the US, reality-TV junkies recently got familiarized with Guyana as the backdrop for a season of Discovery’s wildly popular show Gold Rush. In 2013 Guyana produced in the neighborhood of 450k ounces of gold, mostly from small-scale mines. If the artisanals could do it, so could Gold Rush star Todd Hoffman and team right?

Hoffman’s team failed miserably, producing only enough gold to pay the cab fare back to the airport. Though this failure was mostly self-induced, and entertaining, viewers did get to witness the challenges of mining in a dense tropical rainforest. Guyana’s artisanal miners, known locally as pork-knockers, must work very hard to scrape the gold out of the ground.

Guyana’s artisanal success has attracted more than greenhorns like Todd Hoffman though. It has garnered commercial attention from larger mining companies seeking to find the source deposits. These geologically savvy companies see the big picture of what Guyana has to offer. They understand the prolific Guiana Shield, and its propensity to host greenstone belts full of near-surface mineral deposits highly concentrated with gold. And most importantly, they recognize how vastly underexplored this country truly is.

Aptly named Guyana Goldfields is one company willing to take on Guyana’s challenges in order to score a source deposit. Founder and current Executive Chairman Patrick Sheridan was an early mover into this country, with his team commencing exploration back in the mid-1990s. And their watershed event was the 1998 procurement of the Aurora project.

Gold mineralization was actually discovered at Aurora over 100 years ago. It even saw a bit of mining in the middle of the 20th century, to the tune of approximately 100k ounces. But it didn’t really see any modern exploration until right before Guyana Goldfields took over.

It took several years to build up some exploration momentum considering the state of the gold market around the turn of the century. But when Guyana Goldfields hit its stride, it uncovered a 2.0km-long mineralized corridor that it dubbed the Golden Square Mile. Significant to this was the discovery of Aurora’s flagship deposit just to the east of where historical mining occurred. And in 2007 it announced a maiden resource estimate that showed Aurora to host one of South America’s largest undeveloped gold deposits.

By 2011 Guyana Goldfields had performed numerous comprehensive exploration programs that served to feed a series of positive economic studies. That same year it was able to procure a mining permit, the first large-scale gold-mining license issued by Guyana in 20 years. And within a few months it completed Aurora’s long-awaited feasibility study.

As you can see in the chart below, the markets didn’t take too kindly to the results of this study. And GUY’s stock got simply obliterated, losing a whopping 80% in less than three months to its Q2 2012 low. Though the FS indicated excellent economic potential, even management expressed their overall disappointment with the results.

Aurora was too good of a project for its operators to accept mediocrity though, so Guyana Goldfields grabbed its bootstraps and set out to improve all aspects of the proposed mining plan. As part of its efforts it revised the resource estimate, which now sits at 8.4m ounces in all categories. And it used a core portion of this tally, 3.5m ounces in the proven and probable reserve categories, to feed the updated FS that was announced in January 2013.

The results of this updated definitive study were wildly positive, showing a marked improvement over the previous iteration. And despite this announcement coming at a time of rough sailing for gold and its associated equities, Guyana Goldfields set its sights on developing its gold mine.

Affording this confidence was a buildout that more than halved Aurora’s pre-production capex requirements over the previous study. It made sense operationally too, with projected all-in sustaining costs that’ll have it producing in the lower quartile of industry average. With AISC of only $698/ounce, this mine’s after-tax internal rate of return is calculated at 25% using $1150 gold.

Making the decision to build this mine really was a no-brainer for Guyana Goldfields. Patrick Sheridan thus set the gears in motion to move forward with Aurora’s development. And this included staffing up, with the mid-2013 hires of a new CEO and a new COO who both have developmental/operational experience.

New CEO Scott Caldwell was instrumental in helping to secure Aurora’s development capex. And the first phase of the buildout (~$249m) is now fully funded using a combination of hedge-free debt and equity. Mine construction is now in full gear, and Guyana Goldfields is targeting mid-2015 for commercial production.

Per the mine plan drawn up in the feasibility study, Aurora will produce an average of 194k ounces annually over a 17-year mine life. Mining will initially occur via open-pit methods, and then an underground component will be added in 2018. It’s estimated to cost approximately $151m to develop the underground infrastructure and expand the mill. And Guyana Goldfields hopes a big chunk of this will be funded via cash flow.

As a follow-up to the feasibility study, Guyana Goldfields smartly ran an alternative mining plan in case things really got bad in the gold market. It can obviously remain profitable even at lower gold prices, but it can choose to not go forward with the underground expansion if when the time comes it would be imprudent to expend such capital.

An open-pit-only scenario would obviously reduce the mine life, but it would also reduce life-of-mine AISC since there would be less sustaining capital, which would thus raise the IRR. In this scenario Aurora would produce an average of 177k ounces annually over a 13-year mine life. Guyana Goldfields doesn’t need to make up its mind on this for now, but it’s certainly a nice option to have.

It’ll also likely have more options as it continues to advance exploration at its Aurora project. Not only are there about 5m ounces of resources not included in the mining plan, the deposits are still open in several directions and there are numerous targets that have still yet to see drilling. I suspect Aurora will easily be a 10m+ ounce project down the road.

What an opportunity investors have to take part in one of the world’s premier development-stage gold-mining projects! There aren’t many out there that are fully funded, fully permitted, and that are in line to operate profitably even at lower gold prices. And as you can see in the chart below, investors can gobble up this stock at bargain-basement prices.

This chart plots the daily prices of gold (in red) and GUY (in blue) since 2011.  And as would be expected, it’s pretty ugly.  Following its 2011 all-time high, gold pulled back and consolidated in healthy fashion.  But for a variety of reasons, primarily the Fed-backstopped levitating stock markets, gold crumbled in 2013.  This obviously crushed the gold stocks, leaving most of their 4-year charts looking very similar to this one.

Ultimately with gold oversold and the stock markets overbought, a long overdue mean reversion is on the horizon.  And when gold does finally come back to life, the radically oversold gold stocks are poised to skyrocket.  And the ones that will really thrive are those with quality long-life high-margin assets that’ll greatly leverage a rising gold price.

Research analysts like myself attempt to find these stocks based on their fundamental setups.  And one thing that tends to support the fundamentals is recent stock performance.  Guyana Goldfields has spectacular fundamentals, but how has its stock done relative to gold?

For a non-producing junior, we need to focus on the future prospectivity of its assets.  If the future is bright, then investors ought to bid the stock higher on gold strength.  Gold of course hasn’t been very strong lately, but it’s had four meaningful uplegs subsequent to its 2011 apex.  And as you can see, GUY’s overall performance amidst these uplegs is very encouraging.

The only chink in GUY’s armor was its performance during the first upleg in early 2012.  Its 20% gain to gold’s 15% only gave it 1.3x positive leverage, which is quite pitiful all things considered.  To compensate/reward for their many additional risks, gold stocks need to perform way better than gold on the upside, otherwise they’re not worth owning.

Fortunately this upleg was somewhat of an anomaly, one in which most gold stocks lacked meaningful leverage.  Any momentum GUY had was also short-circuited by the release of its disappointing feasibility study in February.  With gold soon heading back down, investors sold this stock with reckless abandon.

With the weak hands washed out and the prospects for a better-optimized mining plan, GUY performed much better during gold’s second upleg.  And its 68% gain to gold’s 15% provided the kind of excellent positive leverage (4.5x) you hope for when you buy gold stocks.

Gold’s third and fourth uplegs came after GUY’s feasibility update.  And with the future a whole lot brighter, investors rushed into this stock when the metal was bid higher.  Gold’s respective 18% and 16% gains were met with GUY gains of a whopping 96% and 105%, offering outstanding leverage of 5.3x and 6.5x.  And though gold has failed again following its early-2014 upleg, GUY has exhibited exceptional strength as seen in an uptrend that’s held for nearly 1.5 years.

Overall Guyana Goldfields’ spring is wound real tight.  And its stock is poised to launch when gold finally gets some legs.  GUY will likely be an outperformer considering its stellar fundamentals.  And investors have a rare opportunity to grab it at bargain-basement prices.

GUY’s ascent will be accompanied by other elite gold stocks.  And considering how hated this sector still is, most of its compatriots are also trading at silly-undervalued levels.  At Zeal we’ve identified some of these other elites as part of our exhaustive sector-level research.  And like Guyana Goldfields, their prospects are great and their stock prices are extremely cheap.

The bottom line is one of the finest gold-mine development projects in all of South America is located in the small country of Guyana.  Guyana Goldfields was one of the first movers into this underexplored gold mecca.  And its expert team rewarded it with the delineation of a fantastic complex of deposits that now have 10m+ ounce potential.

Guyana Goldfields overcame some adversity in getting to its final mining plan, an operation that is now projected to have stellar economics even at low gold prices.  And its Aurora mine is now fully permitted, fully funded, and under construction with a go-live target of mid-2015.  Investors can snatch up this stock for cheap right now.  And based on its recent behavior, it is poised to pop once gold catches a bid.