Argonaut Gold Inc. (TSX: AR) reported financial and operating results for the fourth quarter and year ended December 31, 2023. All dollar amounts are expressed in United States dollars, unless otherwise specified (CA$ refers to Canadian dollars).

“In fiscal 2023, we set clear objectives for our operations. These included commissioning the Magino mine on schedule, stabilizing Florida Canyon which had underperformed for several years, and reviewing and optimizing our Mexican operations. Presently the Magino mine is steadily progressing through the ramp-up period. Both the Florida Canyon mine and our Mexican mines had a strong year, exceeding the upper end of production guidance on a combined basis by 9%. Notably, Florida Canyon achieved its highest production total in 19 years.

Looking ahead to 2024, we consider Magino to be our future and the key driver for per-share growth. Our immediate focus remains on production optimization and unlocking the significant potential at Magino through reserve expansion. Additionally, we are diligently working on optimizing mining operations at the Florida Canyon mine with the sulfide redevelopment plan. Furthermore, we plan to finalize a debt refinancing agreement to enhance liquidity and flexibility, enabling us to achieve our expansion goals. These objectives align with our mission statement, emphasizing asset growth and operational excellence.” stated Richard Young, President and Chief Executive Officer of Argonaut Gold.

Financial & Operating Highlights

2023 COMPANY HIGHLIGHTS

Financial Highlights

• Revenues for the year ended December 31, 2023 of $372.5 million were 4% lower than the $388.3 million from the prior year as a result of the planned lower production from the Company’s three Mexican mines – La Colorada, San Agustin and El Castillo, partially offset by the initial production at the Magino mine and higher production at the Florida Canyon mine.
• Revenues included $60.0 million from the Magino mine, of which $26.1 million were pre-commercial production ounces. The Magino mine achieved commercial production effective November 1, 2023.
• Gross profit of $40.2 million was 69% higher than $23.8 million from the prior year due to lower production costs and depreciation and depletion expense.
• Generated cash flow from operating activities before changes in working capital and other items totalling $67.4 million, comparable to the prior year amount of $70.6 million.
• Net income of $38.3 million, or $0.04 per basic and diluted share, compared to a net loss in 2022 of $152.2 million, or $(0.28) per basic and diluted share, with the increase largely due to $24.0 million of impairment reversals recorded for mineral properties, plant and equipment in the current year compared to $135.5 million of impairments recorded in the prior year. Higher gross profit and higher income tax recovery also contributed to the increase in net income year over year.
• Adjusted net loss of $2.5 million, or $0.00 per share, compared to an adjusted net loss of $22.4 million, or $(0.04) per share in the previous year, a reduction in the loss of $19.9 million primarily due to higher gross profit as a result of lower depreciation, depletion and amortization in 2023.
• Cash and cash equivalents of $83.8 million and net debt of $128.7 million as at December 31, 2023.
• Consolidated production of 197,511 GEOs was 3% lower compared to 203,155 GEOs from the prior year. The decrease in production was largely due to lower production from the Company’s Mexican mines, partially offset by the initial production from the Magino mine, and higher production from the Florida Canyon mine.
• Cost of sales per gold ounce sold of $1,722, cash cost per ounce of $1,434 and AISC per ounce of $1,722 were all lower than the prior year comparative driven primarily due to lower unit costs at El Castillo and La Colorada.
• During November 2023, the Company closed the sale of an additional 1.0% net smelter return (“NSR”) royalty on its Magino mine for $28.0 million to a subsidiary of Franco-Nevada Corporation (“Franco-Nevada”). Franco-Nevada holds an aggregate 3.0% NSR royalty on the Magino mine.
• On December 12, 2023, the Company completed a bought deal public offering, through a syndicate of underwriters, under which the Company sold a total of 223,685,000 common shares of the Company at a price of CA$0.38 per common share, for gross proceeds of $62.5 million (CA$85.0 million) and net proceeds to the Company of $59.6 million (CA$81.1 million).
• On December 15, 2023, 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 December 31, 2023 and accordingly obtained the waiver to prevent a default event which could trigger the Loan Facilities becoming immediately due and payable. On February 28, 2024, the Company received a further waiver on financial and nonfinancial covenants until March 8, 2024. The Company continues to work through its refinancing plans with both current and prospective lenders. The Company will require an additional waiver from its current lenders on or about March 8, 2024, to avoid a breach of covenants, and anticipates the current constructive refinancing process to continue thereafter. An unremedied breach of covenants can have an adverse impact on the Company’s liquidity and solvency.

Growth Highlights
Magino

• Effective November 1, 2023, the Magino mine achieved commercial production.
• Plant throughput has averaged 8,970 tonnes per day during the fourth quarter.
• During the fourth quarter, the daily mining rates increased sequentially month over month from an average of 40,400 tpd in the third quarter to 40,800 tpd in October, to 45,400 tpd in November and 50,500 tpd in December. Overall, there was a 25% increase in December compared to the third quarter average.
• With additional mobile equipment scheduled to arrive in the first half of 2024, along with the installation of the fleet management system, management expects daily mining rates to increase into the 65,000 tpd range by the second half of 2024. This is in line with the current NI 43-101 technical report for the Magino mine.
• Magino gold grades mined have increased, resulting in the average grade milled, on a monthly basis, increasing from 0.69 grams per tonne (“gpt”) in October to 1.02 gpt in November and to 1.07 gpt in December.
• Mill throughput rates remained below planned capacity in December averaging 9,240 tpd, however, a scheduled mill shutdown in January 2024 is expected to support the continued increase in tonnes per operating hour to the planned capacity of 453 tpoh which equates to 10,000 tpd through design improvements. Plant availability is expected to remain a challenge into the second quarter.
• During the three and twelve months ended December 31, 2023, the Magino mine produced 22,059 and 36,015 gold ounces and sold 19,535 and 31,061  gold ounces, respectively. Production was lower than expected in part due to challenges as it transitioned into a steady feed of higher grade ore. Since improved mining practices were implemented in November, the operations have delivered an increase in feed grade to the mill.
• The infill drill program underway to convert Mineral Resources to Mineral Reserves is proceeding well, having completed approximately 27,000 metres through the end of 2023, constituting 43% of the planned program. The program is expected to be completed on time in June 2024. The goal of the drill program is to add between 500,000 and 1 million ounces to Mineral Reserves, based on the conversion of existing Mineral Resources. A second phase program is expected to continue through the end of 2024. Mill optimization and expansion studies are well underway to determine the most cost effective path to expand the process facilities to between a target of 17,500 and 20,000 tpd.
• A NI 43-101 technical report including the balance of the 63,000 metre drill program and detailed mill optimization and expansion plans is expected to be completed for the second half of 2024.

Florida Canyon

• In 2023, Florida Canyon reported its highest production total in 19 years.
• For 2024 production, material movement and grades are expected to be similar to 2023.
• All permits to construct Phase III of the South Heap Leach Pad, which include bulk earthworks and expansion of the leach pumping and gold recovery systems, have now been received. Site bulk earthworks were initiated in December 2023. Construction of these facilities is expected to be completed in 2024.
• Ore placed on the leach pad is expected to be approximately 20% lower than last year but ounce production is expected to be only marginally lower benefiting from the additional process capacity being added in 2024 as part of the construction of the third leach pad, which will allow the drawdown of inventory which built up in 2023 due to limited processing capacity.
• Drilling concluded on the 1,250-metre West sulphide program in mid-2023.
• Drilling concluded on the 7,520-metre East sulphide program in late 2023.
• A 3,760-metre in-fill drill program was also conducted in the oxide resources in late 2023.
• Analysis and modelling of the drilling results is ongoing and expected to be complete in early 2024.

This press release should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2023 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.

NON-IFRS MEASURES

The Company provides certain non-IFRS measures as supplementary information that management believes may be useful to investors to explain the Company’s financial results.

“Cash cost per gold ounce sold” is a common financial performance measure in the gold mining industry but has no standard meaning under IFRS. The Company reports cash cost per ounce on a sales basis. We believe that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate the Company’s performance and ability to generate cash flow. Accordingly, it 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. This measure, along with sales, are considered to be key indicators of a Company’s ability to generate operating profits and cash flow from its mining operations.

Cash cost figures are calculated in accordance with a standard developed by The Gold Institute, which was a worldwide association of suppliers of gold and gold products and included leading North American gold producers. The Gold Institute ceased operations in 2002, but the standard is considered the accepted standard of reporting cash cost of production in North America. Adoption of the standard is voluntary and the cost measures presented may not be comparable to other similarly titled measures of other companies.

The World Gold Council definition of AISC seeks to extend the definition of cash cost by adding corporate, and site general and administrative costs, reclamation and remediation costs (including accretion and amortization), exploration and study costs (capital and expensed), capitalized stripping costs and sustaining capital expenditures and represents the total costs of producing gold from current operations. AISC excludes income tax payments, interest costs, costs related to business acquisitions and items needed to normalize profits. Consequently, this measure is not representative of all of the Company’s cash expenditures. In addition, the calculation of AISC does not include depreciation expense as it does not reflect the impact of expenditures incurred in prior periods. Therefore, it is not indicative of the Company’s overall profitability. For the year ended December 31, 2023, along with comparative periods, the Company reclassified regional general and administrative expenses in Mexico, and accretion expenses previously classified under the corporate group, to each individual mine group. Management believes this better attributes regional general and administrative expenses and accretion expenses and also improves comparability amongst our peer companies.

“Adjusted net loss” and “adjusted net loss per basic share” exclude a number of temporary or one-time items, which management believes not to be reflective of the underlying operations of the Company, including the impacts of: unrealized losses (gains) on derivatives, non-operating income, foreign exchange losses (gains), impacts of foreign exchange on deferred income taxes, inventory impairments (reversals), impairments (reversals) of mineral properties, plant and equipment, and other unusual or non-recurring items. Adjusted net loss per basic share is calculated using the weighted average number of shares outstanding under the basic calculation of earnings per share as determined under IFRS.

“Net debt” is calculated as the sum of the cash and cash equivalents balance net of debt as at the statement of financial position date. “Net debt” calculation includes unamortized transaction costs netted against the drawn debt, but excludes Convertible Debentures and equipment loans which are currently included in total debt, in order to show the nominal undiscounted debt. This measure has no standard meaning under IFRS and other companies may calculate this measure differently.

“Operating cash flow before working capital and other items” is a non-IFRS measure as it involves adjustments to the operating cash flow metric defined by IFRS. The company presents operating cash flow that excludes certain working capital changes and other items such as income taxes and interest received, this helps investors to assess the performance of the Company’s operations.

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

2. Adjusted net loss and adjusted net loss per basic share exclude a number of temporary or one-time items detailed in the following table:

3. A reconciliation of net debt is detailed in the following table:

4. A reconciliation of operating cash flow before working capital and other items

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, the Company’s flagship asset, the Magino mine, in Ontario, Canada is expected to become Argonaut’s largest and lowest cost mine. The Company is pursuing potential for redevelopment and additional growth at the Florida Canyon mine in Nevada, USA. Together, the Magino and Florida Canyon mines are the Company’s cornerstone assets that will drive Argonaut through this pivotal growth stage. The Company also has one additional operating mine in Mexico, the San Agustin mine in Durango. Residual production is expected from two additional mines located in Mexico. The La Colorada mine in Sonora was placed on care and maintenance at the end of 2023 pending a decision on strategic options for the mine, while mining activities ceased at the El Castillo mine in Durango in 2022. The San Agustin mine and the El Castillo mine together form the El Castillo Mining Complex.