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Argonaut Gold Announces Second Quarter Financial and Operating Results

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Argonaut Gold Announces Second Quarter Financial and Operating Results

 

 

 

 

 

Ramp Up Underway at Magino Mine – On Track for Commercial Production in Q3

 

Argonaut Gold Inc. (TSX: AR) reported financial and operating results for the three and six months ended June 30, 2023, as well as a progress update for the Magino Mine. All dollar amounts are expressed in United States dollars, unless otherwise specified (CA$ refers to Canadian dollars).

 

“Argonaut delivered solid financial and operational results for the quarter, generating strong cash flows to help fund the completion of our newest mine, Magino. During the quarter, the Magino mill began ramping up, putting the mine on track for commercial production in the third quarter. We believe Magino could be one of the largest and lowest cost gold mines in Canada. To that end, during the third quarter, while commissioning the Magino mill, we are commencing a reserve development drilling program intended to increase reserves in combination with engineering studies to increase mill throughput. At the Florida Canyon Mine in Nevada, we are commencing a drill program during the third quarter as part of a proof-of-concept program on the sulphide material. We believe organic growth through mineral resource expansion will deliver significant value within the Company’s asset base and lays the long-term foundation to grow our current production profile as we seek to become a low-cost, mid-tier North American gold producer,” stated Richard Young, President and Chief Executive Officer of Argonaut Gold.

 

SECOND QUARTER HIGHLIGHTS

 

Financial Highlights

  • Revenues of $83.1 million was 25% lower than $111.4 million from the second quarter of 2022, due to lower planned production from the Company’s three Mexican mines, partially offset by higher production from Florida Canyon and includes $0.1 million of initial ounces sold from the Magino mine.
  • Gross profit of $15.5 million was $4.3 million lower than $19.8 million from the second quarter of 2022, due to lower revenues from planned lower production.
  • Generated cash flow from operating activities before changes in working capital and other items totalling $17.4 million, a reduction of 25% from Q2 2022 due to lower gross profit.
  • Net income of $21.2 million, or $0.03 per basic and diluted share, compared to net income of $18.4 million, or $0.06 per share for Q2 2022, a 15% increase in net income.
  • Adjusted net income1 of $5.7 million, or $0.01 per basic share, compared to adjusted net income1 of $7.3 million, or $0.02 per share from Q2 2022, a decrease of $1.6 million.
  • Cash and cash equivalents of $71.8 million and net debt1 of $151.6 million at June 30, 2023.
  • Undrawn debt capacity of $20.0 million at quarter-end.
  • On June 29, 2023, the Company obtained a waiver on certain financial covenants on its $250 million financing package (collectively referred to as the “Loan Facilities”) for the ongoing development and construction of the Magino mine.
  • Consolidated production of 43,492 GEOs, including the initial 3,295 ounces of gold from the Magino mine, was 27% lower compared to 59,190 GEOs from the second quarter of 2022, due to lower ore tonnes mined and processed at the Company’s three Mexican operations.
  • Cost of sales per ounce1 of $1,590, cash cost1 per ounce of $1,304 and AISC1 per ounce of $1,594 were similar to the prior year period and largely in-line with 2023 full-year guidance. With the expectation of achieving commercial production at Magino in the third quarter of 2023, cost of sales per ounce1, cash cost1 per ounce, and AISC1 per ounce are expected to be in-line with full year 2023 guidance.

 

“Production and per ounce costs are largely on plan for the first half of the year, placing the Company on track to meet its full year production and cost guidance targets set at the beginning of the year. We continue to ramp up the mill at Magino to steady-state and are expecting to achieve commercial production in the third quarter of this year. The plant has been running at or above nameplate throughput capacity when operating,” stated Marc Leduc, Chief Operating Officer of Argonaut Gold.

 

Growth Highlights

 

Magino Mine

  • During the second quarter, commissioning activities at the Magino mine were well underway, with the introduction of ore into the crushing circuit mid-May and the grinding circuit approximately one week later.
  • First gold pour was achieved mid-June.
  • During the month of June, the Magino mine produced an initial 3,295 ounces and sold 72 ounces. Accordingly, the Company recognized $0.1 million of revenues and $0.1 million of cost of sales in the period related to these initial pre-commercial production gold ounces.
  • As at June 30, 2023, the Company had incurred approximately $730 million (CA$947 million) of the $755 million (CA$980 million) estimated cost to completion.
  • Initial results during commissioning indicate that throughput targets in the crushing and grinding circuits should be easily achieved, and the team was focused on achieving design parameters by working through instrumentation, electrical, and communications issues that are common in the startup phase of a process plant of this size.
  • Permits have been received to operate the process plant and tailings management facilities.
  • Workforce buildup of the permanent operating team is nearing completion but sourcing the remaining labour remains a challenge in the current economic environment, however, vacant roles are being temporarily filled by contract personnel.

 

Florida Canyon Mine

  • Exploration and development work focused on drilling within the oxide resource, tested a high-grade target in the West Sulfide Zone, and completed regional generative exploration work.
  • In the West Sulfide Zone, the Company completed six diamond drill holes, for a total of 1,258 metres in three drill fences; these holes were part of the Company’s proof-of-concept evaluation of the sulfide resources.

 

Mexico

  • On August 4, 2023, the Company signed an agreement to acquire the necessary land to complete mining of the current reserve base at the San Agustin Mine. Subject to receipt of the necessary permit, expected later this year, mining is expected to continue into 2025.
  • We continue to work towards optimizing the value of our Mexican assets and we are evaluating the full spectrum of alternatives for the portfolio.

 

Second Quarter Financial & Operating Highlights

 

Three months ended

June 30,

Six months ended

June 30,

Financial Data 2023 2022 % Change 2023 2022 % Change
Revenues1 $000s 83,111 111,405 (25) % 152,078 217,207 (30) %
Cost of sales1 $000s 67,649 91,596 (26) % 139,159 175,735 (21) %
Gross profit $000s 15,462 19,809 (22) % 12,919 41,472 (69) %
Net income $000s 21,186 18,412 15 % 10,810 24,030 (55) %
Per basic share $/share 0.03 0.06 (50) % 0.01 0.07 (86) %
Per diluted share $/share 0.02 0.06 (67) % 0.01 0.07 (86) %
Adjusted net income2 $000s 5,685 7,265 (22) % 2,927 15,498 (81) %
Per basic share2 $/share 0.01 0.02 (50) % 0.00 0.05 (100) %
Operating cash flow before changes in
working capital and other items
$000s 17,427 23,250 (25) % 27,911 48,398 (42) %
Operating cash flow $000s 4,349 13,360 (67) % (7,503) 17,395 N/A
Sustaining capital expenditures $000s 6,221 12,194 (49) % 9,967 21,440 (54) %
Magino construction capital $000s 99,672 94,695 5 % 173,232 184,190 (6) %
Cash and cash equivalents $000s 71,799 75,816 (5) % 71,799 75,816 (5) %
Net debt2 $000s (151,608) (4,184) 3524 % (151,608) (4,184) 3524 %
1In the three and six months ended June 30, 2023, these balances include $0.1 million of revenues and $0.1 million of cost of sales related to the pre-commercial production phase of the Magino mine.
2This is a Non-IFRS Measure; please see “Non-IFRS Measures” section.

 

 

Three months ended

June 30,

Six months ended

June 30,

Operating Data 2023 2022 % 2023 2022 %
Gold produced1 oz 42,482 57,409 (26) % 79,980 110,674 (28) %
Gold equivalent ounces (“GEOs”)
produced1,2
oz 43,492 59,190 (27) % 82,077 114,706 (28) %
Gold sold1 oz 42,546 57,343 (26) % 78,714 111,450 (29) %
Average realized price $/oz 1,903 1,884 1 % 1,883 1,879 — %
Cost of sales3 $/oz 1,590 1,597 — % 1,768 1,577 12 %
Cash cost3 $/oz 1,304 1,248 4 % 1,467 1,200 22 %
All-in sustaining costs3 (“AISC”) $/oz 1,594 1,553 3 % 1,756 1,492 18 %
1In the three and six months ended June 30, 2022, 3,295 gold ounces were produced and 72 gold ounces were sold from the pre-commercial production phase of the Magino mine.
2Based on a silver to gold ratio of 80:1 in 2023 and 2022.
3This is a Non-IFRS Measure; please see “Non-IFRS Measures” section.

 

2023 Outlook Analysis

 

Production and per ounce costs are largely on plan for the first half of the year, placing the Company on track to meet its full year production and cost guidance targets set at the beginning of the year. The Magino mine achieved first gold pour in mid-June, 2023, approximately 30 days behind schedule. The Magino mine is currently ramping up to commercial production, which is expected in the third quarter. Production is expected to increase and consolidated cost of sales per ounce1, cash cost per ounce1, and AISC1 per ounce are expected to decline once the Magino mine reaches commercial production.

 

The only significant change in guidance relates to exploration costs which are expected to be approximately $10 million higher than planned due to exploration and reserve development programs underway at the Magino and Florida Canyon mines.

 

Consolidated 2023 production and cost guidance remains unchanged at 200,000 to 230,000 GEOs and an all-in sustaining cost of $1,625 – $1,725 per ounce.

 

This press release should be read in conjunction with the Company’s unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 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.

 

1This is a Non-IFRS Measure; please see “Non-IFRS Measures” section.

 

Endnotes
1. Based on a silver to gold ratio of 80:1 in 2023 and 2022.
2. This is a Non-IFRS Measure; please see “Non-IFRS Measures” section below.

 

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.

 

“Cost of sales per ounce sold” and “Cash cost per ounce sold” are common financial performance measures in the gold mining industry but have no standard meaning under IFRS. The Company reports cost of sales and 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. These measures, 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.

 

“Adjusted net income” and “adjusted net income 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), mineral properties, plant and equipment impairments (reversals), and other unusual or non-recurring items. Adjusted net (loss) income 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, 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.

 

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

 

Magino Mine Three months ended

June 30,

Six months ended
June 30,
2023 2023
Gold sold oz 72 72
Cost of sales $000s 82 82
Cost of sales per ounce sold $/oz 1,139 1,139
Production costs $000s 80 80
Cash Cost $000s 80 80
Cash cost per ounce sold $/oz 1,111 1,111
Cash Cost $000s 80 80
AISC $000s 80 80
AISC per gold ounce sold $/oz 1,111 1,111

 

 

Florida Canyon Mine Three months ended
June 30,
Six months ended
June 30,
2023 2022 % Change 2023 2022 % Change
Gold sold oz 18,518 13,902 33 % 30,751 24,157 27 %
Cost of sales $000s 28,993 25,458 14 % 50,476 44,658 13 %
Cost of sales per ounce sold $/oz 1,566 1,831 (14) % 1,641 1,849 (11) %
Production costs $000s 24,599 22,235 11 % 43,254 39,388 10 %
Less silver sales $000s (376) (193) 95 % (573) (380) 51 %
Cash Cost $000s 24,223 22,042 10 % 42,681 39,008 9 %
Cash cost per ounce sold $/oz 1,308 1,586 (18) % 1,388 1,615 (14) %
Cash Cost $000s 24,223 22,042 10 % 42,681 39,008 9 %
Exploration expenses $000s 823 N/A 823 N/A
Sustaining capital expenditures $000s 5,735 6,644 (14) % 9,226 10,567 (13) %
AISC $000s 30,781 28,686 7 % 52,730 49,575 6 %
AISC per gold ounce sold $/oz 1,662 2,063 (19) % 1,715 2,052 (16) %

 

 

La Colorada Mine Three months ended
June 30,
Six months ended
June 30,
2023 2022 % Change 2023 2022 % Change
Gold sold oz 5,680 13,322 (57) % 10,766 26,402 (59) %
Cost of sales $000s 8,095 17,090 (53) % 20,836 33,937 (39) %
Cost of sales per ounce sold $/oz 1,425 1,283 11 % 1,935 1,285 51 %
Production costs $000s 6,282 14,212 (56) % 17,821 27,593 (35) %
Less silver sales $000s (265) (850) (69) % (468) (1,708) (73) %
Cash Cost $000s 6,017 13,362 (55) % 17,353 25,885 (33) %
Cash cost per ounce sold $/oz 1,059 1,003 6 % 1,612 980 64 %
Cash Cost $000s 6,017 13,362 (55) % 17,353 25,885 (33) %
General and administrative expenses $000s 455 304 50 % 764 614 24 %
Accretion and other expenses $000s 61 61 — % 122 194 (37) %
Sustaining capital expenditures $000s 377 5,089 (93) % 536 6,213 (91) %
AISC $000s 6,910 18,816 (63) % 18,775 32,906 (43) %
AISC per gold ounce sold $/oz 1,217 1,412 (14) % 1,744 1,246 40 %

 

 

San Agustin Mine Three months ended
June 30,
Six months ended
June 30,
2023 2022 % Change 2023 2022 % Change
Gold sold oz 12,774 18,656 (32) % 24,265 35,859 (32) %
Cost of sales $000s 21,933 27,041 (19) % 44,681 51,822 (14) %
Cost of sales per ounce sold $/oz 1,717 1,449 18 % 1,841 1,445 27 %
Production costs $000s 19,126 20,899 (8) % 38,252 40,159 (5) %
Less silver sales $000s (1,415) (2,083) (32) % (2,639) (5,083) (48) %
Cash Cost $000s 17,711 18,816 (6) % 35,613 35,076 2 %
Cash cost per ounce sold $/oz 1,386 1,009 37 % 1,468 978 50 %
Cash Cost $000s 17,711 18,816 (6) % 35,613 35,076 2 %
General and administrative expenses $000s 997 745 34 % 1,682 1,412 19 %
Accretion and other expenses $000s 9 8 13 % 18 17 6 %
Sustaining capital expenditures $000s 109 138 (21) % 205 608 (66) %
AISC $000s 18,826 19,707 (4) % 37,518 37,113 1 %
AISC per gold ounce sold $/oz 1,474 1,056 40 % 1,546 1,035 49 %

 

 

El Castillo Mine Three months ended
June 30,
Six months ended
June 30,
2023 2022 % Change 2023 2022 % Change
Gold sold oz 5,502 11,463 (52) % 12,860 25,032 (49) %
Cost of sales $000s 8,546 22,007 (61) % 23,084 45,318 (49) %
Cost of sales per ounce sold $/oz 1,553 1,920 (19) % 1,795 1,810 (1) %
Production costs $000s 7,521 17,584 (57) % 19,976 34,398 (42) %
Less silver sales $000s (76) (251) (70) % (203) (614) (67) %
Cash Cost $000s 7,445 17,333 (57) % 19,773 33,784 (41) %
Cash cost per ounce sold $/oz 1,353 1,512 (11) % 1,538 1,350 14 %
Cash Cost $000s 7,445 17,333 (57) % 19,773 33,784 (41) %
Accretion and other expenses $000s 1 (100) % 3 (100) %
Sustaining capital expenditures $000s 323 (100) % 4,052 (100) %
AISC $000s 7,445 17,657 (58) % 19,773 37,839 (48) %
AISC per gold ounce sold $/oz 1,353 1,540 (12) % 1,538 1,512 2 %

 

 

All Mines Three months ended
June 30,
Six months ended
June 30,
2023 2022 % Change 2023 2022 % Change
Gold sold oz 42,546 57,343 (26) % 78,714 111,450 (29) %
Cost of sales $000s 67,649 91,596 (26) % 139,159 175,735 (21) %
Cost of sales per ounce sold $/oz 1,590 1,597 – % 1,768 1,577 12 %
Production costs $000s 57,608 74,930 (23) % 119,383 141,538 (16) %
Less silver sales $000s (2,132) (3,377) (37) % (3,883) (7,785) (50) %
Cash Cost $000s 55,476 71,553 (22) % 115,500 133,753 (14) %
Cash cost per ounce sold $/oz 1,304 1,248 4 % 1,467 1,200 22 %
Cash Cost $000s 55,476 71,553 (22) % 115,500 133,753 (14) %
Mine site general and administrative
expenses
$000s 1,452 1,051 38 % 2,446 2,028 21 %
Corporate general and administrative
expenses
$000s 2,541 2,802 (9) % 6,105 5,678 8 %
Share-based compensation expense $000s 664 718 (8) % 1,079 1,886 (43) %
Exploration expenses $000s 823 425 94 % 1,843 792 133 %
Accretion and other expenses $000s 70 70 — % 140 214 (35) %
Corporate accretion and others $000s 572 220 160 % 1,168 439 166 %
Sustaining capital expenditures $000s 6,221 12,194 (49) % 9,967 21,440 (54) %
AISC $000s 67,819 89,033 (24) % 138,248 166,230 (17) %
AISC per gold ounce sold $/oz 1,594 1,553 3 % 1,756 1,492 18 %

 

 

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

 

Three months ended
June 30,
Six months ended
June 30,
2023 2022 % Change 2023 2022 % Change
Net income $000s 21,186 18,412 15 % 10,810 24,030 (55) %
Unrealized gain on derivatives $000s (4,892) (13,525) (64) % (5,121) (12,060) (58) %
Other non-operating expense, net of tax $000s 1,653 (100) % 2,151 (100) %
Foreign exchange (gain) loss, net of tax $000s (7,912) 870 N/A (5,536) 1,825 N/A
Impact of foreign exchange on deferred
income taxes
$000s (242) (137) 77 % (537) (855) (37) %
Inventory (reversal) impairment, net of
tax
$000s (2,455) (8) 30588 % 3,606 (127) N/A
Sale of marketable securities $000s N/A 534 (100) %
Reversal of mineral properties, plant and
equipment, net of tax
$000s N/A (295) N/A
Adjusted net income $000s 5,685 7,265 (22) % 2,927 15,498 (81) %
Weighted average number of common
shares outstanding
000s
shares
864,464 332,787 160 % 843,879 325,417 159 %
Adjusted net income per basic share $/share 0.01 0.02 (50) % 0.00 0.05 (100) %

 

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

 

June 30,
2023
December 31,
2022
Cash and cash equivalents $000s 71,799 73,254
Debt $000s (274,809) (127,793)
Convertible Debentures $000s 49,730 48,404
Magino mine equipment loan $000s 1,672 1,807
Net debt $000s (151,608) (4,328)

 

 

About Argonaut Gold

 

Argonaut Gold is a Canadian gold company with a portfolio of operations and multi-stage assets in North America. Focused on becoming a low-cost mid-tier gold producer, the Company is in the final stages of construction at its Magino Project, located in Ontario, Canada. Magino is expected to achieve commercial production in the third quarter of 2023 and become Argonaut’s largest and lowest cost mine. The commissioning of Magino will be the first step in transforming the Company as it enters a pivotal growth stage. The Company also has three operating mines including the Florida Canyon mine in Nevada, USA, where it is pursuing additional growth, La Colorada mine in Sonora, Mexico and San Agustin mine in Durango, Mexico. Argonaut Gold trades on the Toronto Stock Exchange.

 

Posted August 11, 2023

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