Argonaut Gold Inc. (TSX: AR) announces its operating and financial results for the third quarter ended September 30, 2020.  The Company reports quarterly production of 48,951 gold equivalent ounces¹, cash flow from operating activities before changes in operating working capital of $29.0 million, net income of $13.4 million or earnings per share of $0.05, adjusted net income of $12.2 million or adjusted earnings per share of $0.04  and cash and cash equivalents of $177.9 million.  All dollar amounts are expressed in United States dollars, unless otherwise specified (C$ refers to Canadian dollars). 

CEO Commentary

Pete Dougherty, President and CEO stated: “It was an extremely busy third quarter for the Company.  We closed the Alio transaction, completed a C$126.5 million equity financing and entered into an agreement for the sale of the Ana Paula project.  Subsequent to the end of the quarter, we completed a C$11.5 million flow-through financing to fund exploration at Magino for the next year, announced that we closed a convertible debenture financing for $57.5 million while expanding and extending our revolving credit facility to up to $125.0 million and are moving Magino towards construction early in 2021.  After acquiring the Florida Canyon mine at the beginning of the third quarter, we have begun to implement modifications to the crushing and stacking circuit, which we expect will lower operating costs.  We expect these modifications to be completed in the first half of 2021.”

Key operating and financial statistics for the three and nine months ended September 30, 2020 are outlined in the following table:

Third Quarter 2020 and Recent Company Highlights:

• Corporate
  • Completed at-market merger with Alio Gold Inc. (“Alio”) to create a North American diversified intermediate gold producer.
  • Completed a bought-deal equity financing for gross proceeds of C$126.5 million ($89.6 million).
  • Entered into an agreement to sell the Ana Paula project for $30 million, a C$10 million contingent payment, a 1% net smelter returns royalty and 9.9% equity in the acquiring company.
  • Completed a bought-deal private placement flow-through equity financing for gross proceeds of C$11.5 million ($8.9 million) to fund the continuing exploration program at Magino.
  • Approved Magino project construction.
  • Received fixed bid pricing proposal for approximately 50% of Magino’s initial capital.
  • Completed a bought-deal convertible debenture financing for gross proceeds of $57.5 million.
  • Extended and expanded the existing corporate revolving credit facility to up to $125.0 million.
• El Castillo Complex
  • Third quarter production of 26,690 GEOs.
    • El Castillo production of 9,492 GEOs.
    • San Agustin production of 17,198 GEOs.
  • Reduced cash cost per gold ounce sold by 10% compared to the third quarter of 2019 (see “Non-IFRS Measures” section).
    • El Castillo cash cost per gold ounce sold reduced by 14% compared to the third quarter of 2019 (see “Non-IFRS Measures” section).
    • San Agustin cash cost per gold ounce sold reduced by 3% compared to the third quarter of 2019 (see “Non-IFRS Measures” section).
• La Colorada
  • Third quarter production of 10,972 GEOs.
• Florida Canyon
  • Published updated life-of-mine plan, which generates $381 million of after-tax mine site free cash flow over the next 9.5 years at $1,800 gold.
  • Third quarter production of 11,289 GEOs.
• Magino
  • Continued exploration program targeting high-grade mineralization at depth below the proposed open pit and provided drill result updates at the Elbow and Central zones, which show promising high-grade gold continuity.
  • Preparing to commence construction early in 2021.
• Social Responsibility
  • Received nationally awarded Environmental Socially Responsible Company recognition at the La Colorada mine for the ninth consecutive year.
  • Continued COVID-19 support for communities surrounding the Company’s operations in Mexico, including safety training, donation of hygiene supplies and the sanitization of homes and local businesses.
  • Provided a donation to the Red Cross station in Dolores Hidalgo, Guanajuato Mexico.
  • Donation of food baskets to families and students in communities surrounding Argonaut’s operations.

Financial Results – Third Quarter 2020

Revenue for the three months ended September 30, 2020 was $94.4 million, an increase from $66.8 million for the three months ended September 30, 2019.  During the third quarter of 2020, gold ounces sold totaled 47,651 at an average realized price per ounce of $1,915, compared to 44,303 gold ounces sold at an average realized price per ounce of $1,474 during the same period of 2019.  Gold ounces sold for the three months ended September 30, 2020 increased compared to the same period in 2019 primarily due to addition of the gold ounces sold from the Florida Canyon mine offset by decreases in gold ounces produced and sold at the El Castillo and La Colorada mines mostly related to a large decrease in ore tonnes to leach pads during the second quarter, as a result of the COVID-19 related suspension of mining, crushing and stacking activities in response to the Mexican Federal Government decree.  While the San Agustin mine also suspended mining, crushing and stacking activities during April 2020 and May 2020, gold ounces produced and sold at the San Agustin mine during the three months ended September 30, 2020 were relatively consistent with the three months ended September 30, 2019, as a 10,000 tonne per day expansion to the crushing and stacking system put in place at the end of 2019 led to more ore tonnes to the leach pad prior to and following COVID-19 related suspensions.  As of June 1, 2020, all mining, crushing and stacking activities had resumed at all Mexican operations.

Production costs for the third quarter of 2020 were $51.2 million, an increase from $41.5 million in the third quarter of 2019, primarily due to an increase in gold ounces sold.  Cash cost per gold ounce sold (see “Non-IFRS Measures” section) was $1,008 in the third quarter of 2020, an increase from $901 in the same period of 2019, primarily due to an increase in cash cost per gold ounce sold at the San Agustin mine and the addition of the Florida Canyon mine that has higher cash cost than the other three mines, offset by a decrease in cash cost per gold ounce sold at the El Castillo and La Colorada mines as discussed further in the discussion of operations for the respective mine.  The depreciation, depletion, and amortization (DD&A) expense included in cost of sales for the third quarter of 2020 totaled $13.5 million, an increase from $11.2 million in the third quarter of 2019, primarily due to an increase in gold ounces sold related to the addition of the Florida Canyon mine and by an increase in the average DD&A expense per ounce in work-in-process inventory, primarily due to the significant capital additions during the last half of 2019.

General and administrative expenses for the third quarter of 2020 were $4.5 million, an increase from $3.4 million for the same period of 2019 primarily related to employee related costs.

Transaction costs on acquisition for the third quarter of 2020 were $3.8 million as a result of the Alio merger. 

Losses on commodity derivatives for the third quarter of 2020 were $9.0 million, compared to gains of $0.5 million in the third quarter of 2019, primarily due to the large increase in realized and unrealized losses on the Company’s zero-cost collar commodity contracts.

Impairment reversal of mineral properties, plant and equipment for the third quarter of 2020 was $5.9 million, compared to nil in the third quarter of 2019, primarily due to the increase in mineral reserves and resources at the La Colorada mine from the updated life-of-mine plan and due to updates to the gold price per ounce assumption, both used in determining the recoverable amount of the relative cash generating units for the mine.

Other income for the third quarter of 2020 was $6.2 million, an increase from other expense of $1.1 million in the third quarter of 2019, primarily due to differences in foreign currency translation effects.

Income tax expense for the third quarter of 2020 was $10.4 million, compared to $5.1 million in the same period of 2019, primarily due to higher income before income taxes in the third quarter of 2020 compared to the income before income taxes in the same period of 2019.

Income from continuing operations and net income for the third quarter of 2020 were $14.9 million and $13.4 million, respectively or $0.05 per basic and diluted share, an increase from income from continuing operations and net income of $4.9 million or $0.03 per basic or diluted share for the third quarter of 2019.

Financial Results – First Nine Months 2020

Revenue for the nine months ended September 30, 2020 was $218.9 million, an increase from $196.8 million for the nine months ended September 30, 2019.  During the first nine months of 2020, gold ounces sold totaled 120,527 at an average realized price per ounce of $1,750, compared to 140,729 gold ounces sold at an average realized price per ounce of $1,359 during the same period of 2019.  Gold ounces sold for the nine months ended September 30, 2020 decreased compared to the same period in 2019 primarily due to a decrease in gold ounces sold at the El Castillo and La Colorada mines due to a large decrease in ore tonnes to leach pads as a result of the temporary suspension of mining, crushing and stacking activities in response to the Mexican Federal Government decree related to COVID-19 and due to lower gold ounces sold at the El Castillo mine as a result of changing from crushing ore to run-of-mine ore direct to the leach pads, offset by increased ounces from the Florida Canyon mine effective July 1, 2020.  While the San Agustin mine also suspended mining, crushing and stacking activities during April 2020 and May 2020, gold ounces produced and sold at the San Agustin mine during the nine months ended September 30, 2020 were relatively consistent with the nine months ended September 30, 2019, as a 10,000 tonne per day expansion to the crushing and stacking system put in place at the end of 2019 led to more ore tonnes to the leach pad in prior to and following COVID-19 related suspensions.

Production costs for the nine months ended September 30, 2020 were $123.7 million, a decrease from $133.0 million in the first nine months of 2019 primarily due to a large decrease in gold ounces sold partially offset by a slight increase in cash cost per gold ounce sold.  Cash cost per gold ounce sold (see “Non-IFRS Measures” section) was $960 in the first nine months of 2020, an increase from $906 in the same period of 2019, primarily due to an increase in cash cost per gold ounce sold at the La Colorada mine and the addition of the Florida Canyon mine that has higher cash cost than the other three mines, offset by a decrease in cash cost per gold ounce sold at the San Agustin and El Castillo mines as discussed further in the discussion of operations for the respective mine.  DD&A expense included in cost of sales for the nine months ended September 30, 2020 totaled $33.4 million, a slight increase from $33.3 million in the nine months ended September 30, 2019, mostly due to a large decrease in gold ounces sold offset by an increase in the average DD&A expense per ounce in work-in-process inventory, primarily due to the significant capital additions during the last half of 2019.

General and administrative expenses for the nine months ended September 30, 2020 were $10.9 million, a slight increase from $10.5 million in the same period of 2019.

Transaction costs on acquisition for the nine months ended of September 30, 2020 were $4.6 million as a result of the Alio merger.

Care and maintenance expenses for the nine months ended September 30, 2020 were $8.2 million compared to nil for the comparative period of 2019.  On April 1, 2020, the Company temporary suspended all mining, crushing, and stacking activities in Mexico due to COVID-19 in response to the Mexican Federal Government decree. All activities resumed on June 1, 2020.  Costs incurred during the temporary suspension associated with the suspended activities did not that generate additional inventory were separately identified and accounted for as care and maintenance expenses within operating income in the interim condensed consolidated statements of (loss) income.

Losses on commodity derivatives during the first nine months of 2020 were $23.2 million, compared to gains of $1.0 million in the first nine months of 2019, primarily due to the large increase in unrealized and realized losses on the Company’s zero-cost collar commodity contracts.

Impairment reversal of mineral properties, plant and equipment for first nine months of 2020 was $5.9 million, compared to nil in the first nine months of 2019, primarily due to the increase in mineral reserves and resources of the La Colorada mine from the updated life-of-mine plan and due to updates to the gold price per ounce assumption, both used in determining the recoverable amount of the relative cash generating unit for the mine.

Other income for the nine months ended September 30, 2020 was $1.3 million, an increase from other income of $0.8 million in the same period of 2019, primarily related to differences in foreign currency translation effects.

Income tax expense for the nine months ended September 30, 2020 was $23.8 million, compared to $10.4 million in the same period of 2019.  The change is primarily due to higher taxable income on the Mexican operations in 2020 and due to the foreign exchange effects of the weakening Mexican peso on the calculation of deferred taxes during the first nine months of 2020.

Loss from continuing operations and net loss for the nine months ended September 30, 2020 was $2.3 million and $3.8 million, or $0.01 and $0.02 loss per basic share, respectively, a decrease from and income from continuing operations and net income of $14.4 million or $0.08 per basic and diluted share for the nine months ended September 30, 2019.

Operational Results – Third Quarter 2020

During the third quarter 2020, the Company achieved production of 48,951 GEOs at a cash cost of $1,008 per gold ounce sold and all-in sustaining cost of $1,401 per gold ounce sold compared to 44,712 GEOs at a cash cost of $901 per gold ounce sold and an all-in sustaining cost of $1,134 per gold ounce sold during the third quarter 2019 (see “Non-IFRS Measures” section).  Higher production was primarily due to the addition of the Florida Canyon mine following the acquisition of Alio on July 1, 2020, partially offset by fewer GEOs produced at the El Castillo and La Colorada mines due to a large decrease in ore tonnes to leach pads as a result of the temporary suspension of mining, crushing and stacking activities in response to the Mexican Federal Government decree related to COVID-19.  While the San Agustin mine also suspended mining, crushing and stacking activities during April 2020 and May 2020, GEOs produced and sold at the San Agustin mine during the three months ended September 30, 2020 were relatively consistent with the three month ended September 30, 2019, as a 10,000 tonne per day expansion to the crushing and stacking system put in place at the end of 2019 led to more ore tonnes to the leach pad prior to and following COVID-19 related suspensions.  Higher cash cost and all-in sustaining cost are primarily related the addition of the Florida Canyon mine that has a higher cost and higher sustaining capital spend in 2020, partially offset by a decrease in cash cost and sustaining capital spend at the El Castillo Complex.

Pete Dougherty commented: “We saw lower production in the third quarter than typical steady-state operations due to lower ore tonnes to leach pads in the second quarter, as a result of the shutdown of mining, crushing and stacking activities during April and May.  We also experienced the normal seasonal challenges at our Mexican operations of solution on the leach pads being diluted by heavy rains.  In spite of the rainy season, from a productivity standpoint, we managed to get the required ore tonnes to the leach pads during the third quarter, which leads us to believe the fourth quarter will be our strongest quarter of 2020.”   

THIRD QUARTER 2020 EL CASTILLO COMPLEX OPERATING STATISTICS

Summary of Production Results at the El Castillo Complex

The El Castillo Complex produced 26,690 GEOs at a cash cost of $850 per gold ounce sold during the third quarter of 2020 compared to production of 30,294 GEOs at a cash cost of $947 per gold ounce sold during the third quarter of 2019 (see “Non-IFRS Measures” section).  Lower production was primarily due to a large decrease in ore tonnes to leach pads in the second quarter as a result of the temporary suspension of mining, crushing and stacking activities in response to the Mexican Federal Government decree related to COVID-19.  Lower costs are primarily related to the reduction of crushing and conveying cost at the El Castillo mine following the switch to primarily run-of-mine ore processing earlier in 2020 and a lower waste to ore ratio at El Castillo.

THIRD QUARTER 2020 LA COLORADA OPERATING STATISTICS

Summary of Production Results at La Colorada

La Colorada produced 10,972 GEOs at a cash cost of $910 per gold ounce sold during the third quarter of 2020 compared to 14,418 GEOs at a cash cost of $800 per gold ounce sold during the third quarter of 2019 (see “Non-IFRS Measures” section).  Lower production was primarily due to a large decrease in ore tonnes to leach pads in the second quarter as a result of the temporary suspension of mining, crushing and stacking activities in response to the Mexican Federal Government decree related to COVID-19 and lower gold grade mined.  Higher costs were primilarly related to lower gold ounces sold, as cash cost is calculated on a per-ounce-sold basis.

THIRD QUARTER 2020 FLORIDA CANYON OPERATING STATISTICS

Summary of Production Results at Florida Canyon

As this was the Company’s first quarter of operating history at Florida Canyon following the acquisition of Alio, the Company is not making comparisons to previous periods.  Florida Canyon produced 11,289 GEOs at a cash cost of $1,353 per gold ounce sold during the third quarter of 2020 (see “Non-IFRS Measures” section).  Quarterly production was impacted primarily by a delay in getting the required permit to allow for solution to the newly constructed leach pad and the mining of low-grade material that was previously backfilled into the pit during the historical operations.  The Company has since received the permit to allow for solution to the newly constructed leach pad, which is expected to allow for the designed leach cycle and therefore higher gold recoveries.  The Company anticipates it will have completed mining of the low-grade material that was previously backfilled in the pit early in 2021, which, once completed, should lead to a higher overall gold grade given 100% of mining will then be focused on in-situ ounces.

Outlook – Production

The Company is tracking toward the low end of its 2020 production guidance of between 210,000 and 230,000 GEOs (assuming a full year of production at Florida Canyon).  Updated 2020 production guidance is provided below:

Updated 2020 GEO Production Guidance (in 000s)

Outlook – Cost and Capital

The Company’s consolidated cash cost and all-in sustaining cost continue to track well within the 2020 cost guidance ranges:

• Cash cost per gold ounce sold between $925 and $1,025 (see “Non-IFRS Measures” section).
• All-in sustaining cost per gold ounce sold between $1,225 and $1,350 (see “Non-IFRS Measures” section).

With the recent decision to advance the Magino project into construction early in 2021, the Company anticipates investing between $35 million and $40 million of the Magino project initial capital during the fourth quarter of 2020, primarily related to the financial assurance bond to be posted with the province of Ontario and payments related to long lead time equipment.  The Company also anticipates a reduction in 2020 capital investment at its operating mines primarily due to capital associated with La Colorada (stripping) and Florida Canyon (finalizing modifications to the crushing and stacking circuit) now expected to take place in 2021.  Given these changes to anticipated capital spend, the Company now plans to invest between $93 million and $104 million in capital programs in 2020 (was previously between $64 million and $72 million), including a full year of capital investment at Florida Canyon ($15 million by Alio during the six months ended June 30, 2020), of which $49 million has been spent through September 30, 2020.

About Argonaut Gold

Argonaut Gold is a Canadian gold company engaged in exploration, mine development and production.  Its primary assets are the El Castillo mine and San Agustin mine, which together form the El Castillo Complex in Durango, Mexico, the La Colorada mine in Sonora, Mexico and the Florida Canyon mine in Nevada, USA.  Advanced exploration projects include the Magino project in Ontario, Canada and the Cerro del Gallo project in Guanajuato, Mexico.  The Company holds several other exploration stage projects, all of which are located in North America.