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Argonaut Gold Announces Fourth Quarter and Full Year 2022 Financial Results

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Argonaut Gold Announces Fourth Quarter and Full Year 2022 Financial Results

 

 

 

 

 

Achieves guidance for 2022 production

 

Argonaut Gold Inc. (TSX: AR) announced its operating and financial results for the fourth quarter and year ended December 31, 2022. All dollar amounts are expressed in United States dollars, unless otherwise specified (CA$ refers to Canadian dollars).

 

FULL YEAR 2022 HIGHLIGHTS

Year ended December 31, 2022 compared to year ended December 31, 2021

  • Achieved 2022 annual guidance for gold equivalent ounce production
  • Produced 203,155 GEOs
  • Sold 207,158 GEOs, a 17% decline
  • 5% increase in average realized gold price per ounce to $1,877
  • 11% decrease in revenue to $388.3 million as a result of lower gold ounces sold
  • On a per ounce sold basis, cash cost1 and all-in sustaining cost1 were higher due to inventory write-downs, lower year-over-year production, and higher costs
  • Generated cash flow from operating activities before changes in non-cash operating working capital and other items totaling $70.6 million, a reduction of 43% due to lower sales and higher costs
  • $135.5 million non-cash impairment of mineral properties, plant and equipment, largely due to the inflationary pressures on the Company’s low-grade heap leach operations combined with land access and permitting issues at two of its Mexican mines, San Agustin and La Colorada
  • $22.9 million non-cash write-downs of inventories to net realizable values
  • Net loss of $152.2 million compared to net income of $26.5 million; adjusted net loss1 of $22.4 million compared to adjusted net income1 of $57.1 million
  • Cash and cash equivalents of $73.3 million
  • Undrawn debt capacity at year end stands at $170 million

 

FOURTH QUARTER 2022 HIGHLIGHTS

Quarter ended December 31, 2022 compared to quarter ended December 31, 2021

  • Produced 42,510 GEOs, a 31% decline
  • Sales of 51,615 GEOs, a 9% decline
  • 3% increase in average realized gold price per ounce to $1,860
  • 7% decrease in revenue to $95.9 million due to lower gold ounces sold partially offset by higher average realized gold price per ounce
  • On a per ounce basis, cash cost1 and AISC1 were higher due to the write-down of inventories to net realizable value at four mines. Additionally, lower production and inflationary pressures increased operating costs
  • Generated cash flow from operating activities before changes in non-cash operating working capital and other items of $8.6 million, 53% lower due to decline in gold sales and higher costs

 

“Last year was a challenging year for the Company on two fronts. First, the increase in construction costs at the Magino project required a large capital raise, including debt, equity and the sale of a royalty. Second, the inflationary pressures had a significant impact on operating results of our low-grade heap leach operations, resulting in an impairment of our Mexican assets and Florida Canyon mine,” stated David Ponczoch, Chief Financial Officer.

 

“As part of the Company’s effort to focus on prioritizing core assets, we have sold and optioned two non-core Mexican assets and revised mine plans of our three operating mines in Mexico to focus on free cash flow generation.  As a result, we suspended mining activities at our El Castillo mine at the end of last year and we expect mining activities at San Agustin and La Colorada will temporarily pause by the end of this year, until land access and permits are received to complete mining of the remaining reserves and resources,” stated Marc Leduc, Chief Operating Officer.

 

“Looking ahead, management is laser focused on completing the Magino project, with first pour planned for mid-May followed by commercial production in the third quarter. The commissioning of Magino will be the first step in transforming the Company as it enters a pivotal growth stage. We believe Magino has the potential to be one of the 10 largest and lowest cost gold mines in Canada, combining a large open pit operation with the potential of higher-grade underground material to feed an expandable mill. In addition, management will be focused on exploring the large sulfide resource at Florida Canyon, located just below the oxide deposits,” said Richard Young, President and Chief Executive Officer.

 

Management Changes

 

The Company is pleased to announce two new appointments to its senior leadership team: David Savarie, Vice President, General Counsel & Corporate Secretary, and Nancy Lee, Vice President, Human Resources. Mr. Savarie brings over 20 years of professional experience to the Company, the last 15 of which have been exclusively within mining. Ms. Lee brings more than 25 years of experience to the Company, the last 10 of which have been exclusively within mining.

_____________________________________
 1This is a Non-IFRS Measure. Please refer to the section below entitled “Non-IFRS Measures” for a discussion of these Non-IFRS Measures.

 

Fourth Quarter and Full Year 2022 Financial & Operating Highlights
Three and twelve months ending December 31, 2022 and 2021

 

3 Months Ended

December 31

12 Months Ended

December 31

2022 2021 Change 2022 2021 Change
Financial Data (in millions except for per
share amounts)
Revenue $95.9 $102.9 (7 %) $388.3 $436.9 (11 %)
Gross (loss) profit $(24.6) $17.8 (238 %) $23.8 $114.4 (79 %)
Net (loss) income $(174.9) $(37.3) (369 %) $(152.2) $26.5 (674 %)
(Loss) earnings per share – basic $(0.22) $(0.12) (80 %) $(0.28) $0.09 (406 %)
Adjusted net (loss) income1 $(37.7) $10.2 (470 %) $(22.4) $57.1 (139 %)
Adjusted earnings (loss) per share – basic1 $(0.05) $0.03 (242 %) $(0.04) $0.19 (121 %)
Cash flow from operating activities before
changes in non-cash operating working
capital and other items
$8.6 $18.3 (53 %) $70.6 $124.9 (43 %)
Cash and cash equivalents $73.3 $199.2 (63 %) $73.3 $199.2 (63 %)
Net (debt) cash1 $(4.3) $119.2 (104 %) $(4.3) $119.2 (104 %)
Production and Cost Data
GEOs loaded to the pads2 90,483 102,524 (12 %) 348,429 458,342 (24 %)
GEOs projected recoverable2,3 47,777 59,386 (20 %) 194,065 258,474 (25 %)
GEOs produced2,4 42,510 61,926 (31 %) 203,155 244,156 (17 %)
GEOs sold2 51,615 56,961 (9 %) 207,158 242,333 (15 %)
Average realized gold price per ounce $1,860 $1,799 3 % $1,877 $1,791 5 %
Cash cost1 per gold ounce sold $2,005 $1,172 71 % $1,443 $1,006 43 %
AISC1 cost per gold ounce sold $2,266 $1,514 50 % $1,765 $1,311 35 %
1This is a Non-IFRS Measure.  Please refer to the section below entitled “Non-IFRS Measures” for a discussion of these Non-IFRS Measures.
2GEOs are based on a conversion ratio of 80:1 for silver to gold for 2022 and 85:1 for 2021. The silver to gold conversion ratio is based on the three-year trailing average silver to gold ratio.
3Expected recoverable GEOs are based on the assumptions and parameters as set forth in the El Castillo Gold Mine Technical Report dated February 14, 2022, the San Agustin Gold/Silver Mine Technical Report dated February 14, 2022, the La Colorada Gold/Silver Mine Technical Report dated February 14, 2022 and the Florida Canyon Technical Report dated July 8, 2020.  In periods where the Company mines and processes material not specifically defined in a technical report (for example: low-grade stockpile material or run-of-mine ore), management uses its best estimate of recovery based on the information available.
4Produced ounces are calculated as ounces loaded to carbon.

 

The Company sold more ounces than it produced in the fourth quarter 2022 due to timing of gold sales. Ounces remaining in finished goods inventory at the end of the third quarter were sold in October 2022. The average realized gold price was $1,860 per gold ounce in fourth quarter 2022 as compared with the average price of $1,799 for the prior year period. This higher price was realized by delivering into the gold forward pricing contracts for the quarter and into future forward contracts.

 

Magino Project Update

 

By the end of 2022, the Company had incurred approximately $583 million on Magino construction, and estimated the project was 80% complete.

 

The Magino project’s estimated EAC was increased from $730 million (CA$920 million) to $755 million (CA$980 million). The increase in costs were largely attributed to: (i) an anticipated 45-day delay to first pour, which results in higher capitalized overheads; (ii) higher earthworks costs related to higher fuel prices and scope changes; (iii) higher power costs; and iv) changes to reduce risks in the mine plan, partially offset by the weakening of the Canadian dollar against the US dollar. Those activities under the Company’s scope include earthworks, on-site infrastructure, and site power, and are all proceeding on schedule for completion in time for the anticipated first pour in mid-May 2023. Ausenco Engineering Canada Inc., the engineering firm contracted by the Company to complete the mineral processing plant and related infrastructure, is on schedule for the same timing as well. The site team is in the process of ramping up the operations team for full operations. Ore mining commenced ahead of schedule in January 2023 to allow for the buildup of an ore stockpile to de-risk operations. The commissioning team is arriving on site and the site team is focused on operations readiness.

 

Ramp up to commercial production is expected to take three months following first pour in mid-May 2023, thereby placing the project on schedule for commercial production, estimated in the third quarter 2023.

 

2022 Guidance (Amended) vs 2022 Actual and 2023 Guidance

 

Argonaut achieved its 2022 guidance for GEO production. The Company exceeded 2022 cost guidance for cash cost1 and AISC1 per gold ounce sold due to write-downs of inventories to net realizable values at El Castillo, Florida Canyon, San Agustin, and La Colorada, which increased cash cost1 and AISC1 by $114 per ounce. The higher cost per ounce guidance for 2023 reflects the higher non-cash amortization of inventories at the Company’s three Mexican mines. The 2023 per ounce cost guidance for Magino is largely in line with the last technical report issued. As Magino ramps up production and becomes the Company’s largest producing mine, the Company expects overall AISC per ounce of gold to decline.

 

 2022 Guidance
(Amended)3
2022 Actual 2023 Guidance
GEO production1 oz 200,000 – 230,000 203,155 200,000 – 230,000
Cost of sales2 per gold ounce sold $/oz 1,816 1,500 – 1,600
Cash cost2 per gold ounce sold $/oz 1,300 – 1,350 1,443 1,200 – 1,300
AISC2 per gold ounce sold $/oz 1,650 – 1,725 1,765 1,625 -1,725
Capital (including exploration and excluding
Magino construction capital)
$ millions 60 – 65 63 50 – 55
Magino Construction Capital $ millions 400 – 423 335 173
1Based on a silver to gold ratio of 80:1 in 2022 and 85:1 in 2021.
2This is a Non-IFRS Measure. Please refer to the section below entitled “Non-IFRS Measures” for a discussion of these Non-IFRS Measures.
32022 amended guidance was initially presented in the Company’s November 3, 2022 earnings news release.

 

Argonaut’s consolidated financial statements and management’s discussion & analysis, for the three and twelve month periods ended December 31, 2022, are available on Argonaut’s website at https://www.argonautgold.com/English/investors/financial-reports/default.aspx and on SEDAR at www.sedar.com.

 

______________________________________
1This is a Non-IFRS Measure.  Please refer to the section below entitled “Non-IFRS Measures” for a discussion of these Non-IFRS Measures.

 

Non-IFRS Measures

 

The Company has included certain non-IFRS measures including “Adjusted net (loss) income” and “Net (debt) cash” and non-IFRS ratios including “Cost of sales per gold ounce sold”, “Cash cost per gold ounce sold”, “AISC per gold ounce sold”, “Adjusted (loss) earnings per share – basic” in this press release to supplement its financial statements which are presented in accordance with IFRS. The Company believes that these measures provide investors with an alternate view to evaluate the performance of the Company by providing information on control of production costs, trends in cash costs of the Company and the underlying operating performance of the core mining business. Management also uses these measures to monitor internal performance. Non-IFRS measures do not have any standardized meaning prescribed under IFRS. Therefore, they may not be comparable to similar measures employed by other companies. The data is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

 

  1. The following tables provide reconciliations of production costs per the financial statements to cost of sales per gold ounce sold and cash cost per gold ounce sold for each mine:

 

All Mines Three months ended

December 31,

 Year ended

December 31,

2022 2021 2022 2021
Production costs, as reported $000s 80,322 68,278 278,293 253,750
Inventory impairment $000s 22,876 22,876
Less silver sales $000s 1,749 3,732 11,565 19,046
Net cost of sales $000s 101,449 64,546 289,604 234,704
Gold ounces sold oz 50,606 55,094 200,695 233,349
Cost of sales per gold ounce sold $/oz 2,378 1,544 1,816 1,382
Cash cost per gold ounce sold $/oz 2,005 1,172 1,443 1,006

 

  1. AISC includes net cost of sales at the Company’s mining operations, which forms the basis of the Company’s cash cost per gold ounce sold. Additionally, the Company includes general and administrative, exploration, accretion and other expenses, and sustaining capital expenditures. Sustaining capital expenditures exclude all expenditures at the Company’s pre-production, development stage, and advanced exploration stage projects and certain expenditures at the Company’s operating sites that are deemed expansionary in nature.

 

The following table provides a reconciliation of AISC per gold ounce sold to the consolidated financial statements:

 

Three months ended

December 31,

 Year ended

December 31,

2022 2021 2022 2021
Net cost of sales $000s 101,449 64,546 289,604 234,704
General and administrative expenses $000s 5,113 5,411 18,226 18,130
Exploration expenses $000s (2,094) 1,063 1,403 4,315
Accretion and other expenses $000s 3,398 3,121 13,496 11,455
Sustaining capital expenditures $000s 6,825 9,271 31,406 37,276
AISC $000s 114,691 83,412 354,135 305,880
Gold ounces sold oz 50,606 55,094 200,695 233,349
AISC per gold ounce sold $/oz 2,266 1,514 1,765 1,311

 

  1. Adjusted net (loss) income and adjusted (loss) earnings per share – basic exclude a number of temporary or one-time items described in the following table, which provides a reconciliation of adjusted net (loss) income to the consolidated financial statements:

 

Three months ended

December 31,

 Year ended

December 31,

2022 2021 2022 2021
Net (loss) income, as reported $000s (174,937) (37,252) (152,202) 26,529
Unrealized loss (gain) on derivatives $000s 5,035 (3,776) (7,165) (21,015)
Other non-operating income, net of tax $000s (3,849) (511) (534) (2,432)
Foreign exchange loss (gain), net of tax $000s 6,867 (258) 8,348 2,782
Impact of foreign exchange on deferred
income taxes
$000s (5,955) (889) (6,413) (225)
Inventory impairment (reversal), net of
tax
$000s 10,387 (350) 10,311 (1,762)
Loss on sale of marketable securities $000s 534
Impairment of mineral properties, plant
and equipment, net of tax
$000s 125,168 52,903 125,168 52,903
Adjusted net (loss) income $000s (37,722) 10,223 (22,391) 57,136
Weighted average number of common
shares outstanding, as reported
shares 808,689,807 311,196,542 552,547,321 307,975,052
Adjusted (loss) earnings per share –
basic
$/share (0.05) 0.03 (0.04) 0.19

 

  1. Net cash or debt is calculated as the sum of the cash and cash equivalents balance net of debt as at the statement of financial position date. The net debt calculation excludes the convertible debentures and lease liabilities, due to the nature of the obligations, in order to show the nominal undiscounted debt.

 

A reconciliation of net cash (debt) is provided below:

 

December 31,
2022
September 30,
2022
December 31,
2021
Cash and cash equivalents $000s 73,254 89,195 199,235
Debt $000s (77,581) (80,000) (80,000)
Net (debt) cash $000s (4,327) 9,195 119,235

 

 

This press release should be read in conjunction with the Company’s audited consolidated financial statements for the three and twelve months ended December 31, 2022 and associated MD&A for the same periods, which are available from the Company’s website, www.argonautgold.com, in the “Investors” section under “Financial Filings”, and under the Company’s profile on SEDAR at www.sedar.com.

 

About Argonaut Gold

 

Argonaut Gold Inc. is a Canadian gold company listed on the Toronto Stock Exchange, and engaged in exploration, mine development and production.  The Company is in the final stages of construction of the Magino mine, located in Ontario, Canada. The Company also has three operating mines including the Florida Canyon mine in Nevada, USA, the San Agustin mine in Durango, Mexico, and the La Colorada mine in Sonora, Mexico. In Q4 2022, the El Castillo mine ceased mining operations and is now in residual leaching. In addition, the Company holds the advanced exploration stage Cerro del Gallo project and several other exploration stage projects, all of which are located in North America. On July 1, 2020, the Company completed the acquisition of Alio Gold Inc. which held the Florida Canyon mine and Ana Paula project.

 

 

 

Posted February 27, 2023

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