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Argonaut Gold Announces First Quarter Financial and Operating Results

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Argonaut Gold Announces First Quarter Financial and Operating Results

 

 

 

 

 

Argonaut Gold Inc. (TSX: AR) reported financial and operating results for the first quarter ended March 31, 2024. All dollar amounts are expressed in United States dollars, unless otherwise specified (CA$ refers to Canadian dollars). During the quarter, Argonaut  entered into a definitive agreement  whereby Alamos Gold Inc. will acquire all of the issued and outstanding shares of Argonaut pursuant to a court approved plan of arrangement (the “Transaction”). As part of the Transaction, Alamos will acquire Argonaut’s Magino mine and in which Argonaut’s assets in the United States and Mexico will be spun out to its existing shareholders within a newly created junior gold producer.

 

“At our flagship Magino Mine, ramp up of mining and milling activities during the first quarter of the year proceeded at a slower rate than planned. Mining rates were lower than planned due to low loader availability.  However, mining rates are improving, as expected with a second PC3000 shovel commissioned in late April, which has resulted in mining rates of 65,000 tonnes per day during the first part of May.  Mill throughput rates on a tonne per operating hour basis were largely in line with nameplate rates, however plant availability was low due to a number of significant unplanned downtime events. A specialist team was brought in to assist the mill maintenance team to make the necessary repairs and optimizations to the plant.  That work is expected to be completed by the end of the second quarter, which should put the mill on track to achieve nameplate capacity in the second half of the year.

 

During the quarter, Florida Canyon delivered strong production while securing the required permits to construct Phase III of the South Heap Leach Pad which is expected to be completed in the third quarter 2024. The Company expects to publish a NI 43-101 Technical Report in the second quarter 2024 which incorporates the 2023 exploration results and updates to the operating plan.

 

The agreement with Alamos provides a unique opportunity to place Magino in the hands of a company with stronger financial capacity to complete the ramp up and optimization of Magino. Ultimately, this decision provides long-term upside potential for all stakeholders,” stated Richard Young, President and CEO of Argonaut Gold.

 

The definitive agreement Argonaut entered into with Alamos resulted in a number of significant changes to the presentation of the financial statements and expenses. The statements reflect three major changes related to the Transaction.

  • The Company’s Florida Canyon mine in the United States and the Company’s assets in Mexico have been consolidated into one line item in the financial statements as assets/liabilities held for sale and discontinued operations;
  • The Company’s debt facilities have been classified as current liabilities as under the loan agreements the full amount is due on a change of control; and
  • The Company recorded write downs on the carrying value of its property, plant, and equipment for the Magino mine and the Mexican operations to the expected proceeds under the Transaction or disposal;
  • In addition, the Company recognized Transaction expenses related to the refinancing and Transaction during the quarter.

 

Financial & Operating Highlights1

 

Three months ended

March 31,

Financial Data 2024 2023 % Change
Revenues $000s 34,742 NM3
Cost of sales $000s 44,003 NM
Gross loss $000s (9,261) NM
Net loss $000s (390,661) (10,376) NM
•  Continuing operations $000s (333,759) (5,018) NM
•  Discontinued operations $000s (56,902) (5,358) NM
Loss per basic and diluted share $000s (0.36) (0.01) NM
•  Continuing operations $/share (0.31) 0.00 NM
•  Discontinued operations $/share (0.05) (0.01) NM
Adjusted net loss2 $000s (30,131) (5,055) NM
      Per basic share2 $/share (0.03) (0.01) NM
Operating cash flow $000s (8,680) (11,852) (27) %
Operating cash flow before changes in working capital and other items2 $000s (5,405) (4,814) 12 %
Total sustaining capital expenditures $000s 28,156 NM
March 31,

2024

December 31,

2023

% Change
Cash and cash equivalents $000s 2,331 83,785 (97) %
Cash and cash equivalents in assets held for sale $000s 26,495 NM
Net debt2 $000s (186,545) (128,736) NM
_________________________
1 Income statement and cash flow items for the three months ended March 31, 2023 have been restated to reflect the effect of discontinued operations.
2 This is a Non-IFRS Measure; please see “Non-IFRS Measures” section.
3 References to “NM” are certain change percentages are not meaningful.

 

 

Three months ended

March 31,

Operating Data 2024 2023 % Change
Gold produced oz 48,564 37,498 30 %
Continuing operations oz 16,870 NM
Discontinued operations oz 31,694 37,498 (15) %
Gold equivalent ounces (“GEOs”) produced oz 49,444 38,585 28 %
Continuing operations oz 16,935 NM
Discontinued operations oz 32,509 38,585 (16) %
Gold sold oz 46,168 36,168 28 %
Continuing operations oz 17,182 NM
Discontinued operations oz 28,986 36,168 (20) %
Average realized price $/oz sold 1,943 1,858 5 %
Cost of sales $/oz sold 2,082 1,977 5 %
Cash cost2 $/oz sold 1,698 1,660 2 %
All-in sustaining costs2 (“AISC”) $/oz sold 2,799 1,920 46 %

 

 

FIRST QUARTER COMPANY HIGHLIGHTS

 

Financial Overview

  • The financial highlights, including revenue, cost of sales, and gross loss, relate to the Magino mine only, as the results for Florida Canyon and the Mexican mines have been reclassified as discontinued operations.
  • The Magino mine’s revenue and costs of sales were below plan due to lower than expected production due to lower mill throughput and grades processed.
  • Net loss from continuing operations of $333.8 million was larger than the previous year period due to an impairment recorded for the Magino mine, higher income tax expense and higher net finance expense that was previously capitalized in the prior period and the recognition of a gross loss for Magino in the first quarter of 2024.
  • Other expense was also higher than the prior comparative period due to a higher loss on derivative instruments as well as transaction costs for re-financing arrangements and the Transaction.
  • Cash outflows from continuing operations was larger than the prior year period mainly due to changes in working capital. Operating activities before working capital and other items totalling $5.4 million was comparable to the prior year period amount.
  • Cash and cash equivalents including cash held in assets held for sale was $28.8 million and net debt was $186.5 million as at March 31, 2024.
  • Consolidated GEO production of 49,444 was 28% higher than the prior year three-month period due to the contribution of production at the Magino mine.
  • On March 27, 2024, the Company entered into a definitive agreement to sell all of the issued and outstanding shares of Argonaut to Alamos. Concurrently, Argonaut’s assets in the United States and Mexico will be spun out to its existing shareholders as a newly created junior gold producer. As a result of the Transaction, the Florida Canyon mine in the United States and La Colorada mine, San Agustin mine, El Castillo mine, and Cerro del Gallo project in Mexico are accounted for as assets held for sale and discontinued operations.
  • On March 28, 2024, the Company obtained a waiver on certain financial covenants on its $250 million financing package (collectively referred to as the “Loan Facilities”). It was anticipated the Company would not be in compliance with certain financial covenants as at March 31, 2024 and accordingly the Company obtained the waiver to prevent a default event which could trigger the Loan Facilities becoming immediately due and payable. This waiver includes requirements for the Company to maintain a minimum cash balance of $20 million at all times until June 28, 2024 and for the Transaction to be completed by the same date. An unremediated breach of covenants can have an adverse impact on the Company’s liquidity and solvency.
  • On April 4th, 2024, the Company closed a non-brokered private placement, pursuant to which Alamos subscribed (the “Private Placement”) for 174,825,175 common shares of Argonaut (the “Acquired Shares”), representing approximately 13.8% of Argonaut’s total outstanding common shares after giving effect to the Private Placement. The Acquired Shares were acquired at a price of CA$0.286 per share, for total gross proceeds to Argonaut of $37.0 million (CA$50 million).

 

Growth Highlights

 

Magino Mine

  • During the first quarter, the daily mining rates increased month over month from an average of 45,600 tonnes per day in the fourth quarter to 47,400 tpd in January, to 53,200 tpd in February and 54,600 tpd in March. Overall, material movement in the first quarter was 13% higher than the fourth quarter of 2023.
  • As expected, the increased mining and haulage rates can be attributed to further utilization of the fleet management system and the commissioning of four additional haul trucks.
  • With the second PC3000 shovel commissioned in the second quarter of 2024, daily mining rates are expected to increase to approximately 65,000 tpd by the second half of 2024.
  • Milled gold grade continues to improve, with the first quarter grade milled averaging 0.98 grams per tonne (“gpt”), 6% higher than the fourth quarter gold grade of 0.92 gpt. Monthly average gold grades were 0.99 gpt in January, 1.02 gpt in February, and 0.93 gpt in March.
  • Plant throughput averaged 5,132 tpd in January, 6,855 tpd in February, and 6,973 tpd in March for a first quarter average of 6,308 tpd. Note that tonnes milled per operating hour were largely in line with design rates in the quarter, the shortfall in mill throughput was attributed to lower-than-expected mill operating time.
  • Mill availability was impacted by unplanned downtime related to ball mill coupling failures, the premature wear and replacement of conveyor belts, and ball mill liner failures, as well as a fire within the rubber-lined chute.
  • Plant availability is expected to improve through the second quarter reflecting ongoing work to optimize the milling and crushing circuits, including replacement of the conveyor belts and mill liners with high quality components which was going through the first quarter, and into the second quarter.
  • This drove a significant increase in throughput rates in April to average 9,252 tonnes per day, the highest monthly average since commissioning in the second quarter of 2023.
  • During the three months ended March 31, 2024, the Magino mine produced 16,870 gold ounces and sold 17,182 gold ounces. Production was lower than expected in part due to lower-than-expected mill operating time and gold grade processed. April 2024 production improved to 8,370 GEOs, well above the monthly average of 5,600 GEOs in the first quarter.
  • The infill drill program to convert mineral resources to reserves and the mill expansion studies were paused as of the date of the Transaction. These activities are anticipated to resume in the third quarter.

 

Florida Canyon Mine

  • First quarter 2024 ounce production was marginally better than planned at 18,516 GEOs, continuing to build on 2023’s strong performance.
  • All permits to construct Phase III of the South Heap Leach Pad have been received and construction has been ongoing since December 2023. The project is proceeding on time and budget and is expected to be completed in the third quarter of 2024.
  • Analysis and modelling work incorporating the 2023 exploration drilling is ongoing.
  • The Company expects to publish a NI 43-101 Technical Report in the second quarter 2024 which incorporates the 2023 exploration results and updates to the operating plan.
  • The NI 43-101 Technical Report is expected to include the results of the sulphide proof of concept drill program in 2023.

 

Full details of the Transaction will be included in a management information circular of Argonaut Gold that is expected to be mailed to Argonaut Gold shareholders on or about May 30, 2024.  The proposed Transaction will be completed pursuant to a plan of arrangement completed under the Business Corporations Act (Ontario). The Transaction will require approval by 66 2/3% of the votes cast by the shareholders of Argonaut at a special meeting of Argonaut shareholders expected to be held in June 2024.

 

This press release should be read in conjunction with the Company’s consolidated financial statements for the quarter ended March 31, 2024 and associated Management’s Discussion and Analysis for the same period, which are available on the Company’s website at www.argonautgold.com, in the “Investors” section under “Financial Filings”, and under the Company’s issuer profile on SEDAR+ at www.sedarplus.ca.

 

ABOUT ARGONAUT GOLD

 

Argonaut Gold is a Canadian-based gold producer with a portfolio of operations in North America. Focused on becoming a low-cost, mid-tier gold producer, Argonaut’s flagship asset, the Magino Mine, located in Ontario Canada, is expected to become Argonaut’s largest and lowest cost mine.

 

On March 27, 2024, the Company announced the sale of the Company to Alamos Gold Inc. Concurrent with this transaction, Argonaut’s assets in the United States and Mexico will be spun out to its existing shareholders as a newly created junior gold producer. SpinCo will own the Florida Canyon mine in the United States, as well as the El Castillo Complex, the La Colorada operation, and the Cerro del Gallo project, located in Mexico. The shareholder vote is expected to take place in June 2024.

 

Posted May 16, 2024

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