Argonaut Gold Inc. (TSX: AR) reported financial and operating results for the three and nine months ended September 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).

“We made measurable progress in the third quarter delivering a solid performance at our existing operations. Despite the early challenges and a slower than expected ramp-up, we achieved commercial production at our flagship asset, the Magino mine, after the quarter end.  This achievement coupled with strong performance at our Florida Canyon mine is a testament to our team who has worked diligently to optimize our operations.  Going forward, we will focus on allocating capital towards those assets, projects and activities that generate the highest potential for per share growth that includes increasing production through reserve and plant expansion at the Magino mine and redevelopment of the Florida Canyon mine,” Richard Young, President and Chief Executive Officer of Argonaut Gold.

“Since the beginning of the fourth quarter, Magino’s throughput has been averaging 9,200 tonnes per day, in-line with nameplate capacity.  As we continue to ramp up, we are focused on driving mining productivity, mill optimization, and further advancing the plant expansion that has the potential to increase throughput to annual production above 200,000 ounces per year for the life of mine,” said Marc Leduc, Chief Operating Officer of Argonaut Gold.

THIRD QUARTER HIGHLIGHTS

Financial Highlights

• Revenues of $104.8 million was 39% higher than $75.3 million from the third quarter of 2022, due to initial production at the Magino mine and higher production at the Florida Canyon mine, partially offset by lower planned production from the Company’s three Mexican mines – El Castillo, La Colorada, and San Agustin.
• Revenues include $22.0 million of pre-commercial production ounces sold from the Magino mine. Subsequent to the end of the third quarter, the Magino mine achieved commercial production on November 1, 2023.
• Gross profit of $17.1 million was 146% higher than $7.0 million from the third quarter of 2022, due to higher revenues from the Magino mine and Florida Canyon mine.
• Generated cash flow from operating activities before changes in working capital and other items totalling $21.1 million, an increase of 55% from the 2022 comparative period due to higher gross profit.
• Net loss of $0.5 million, or $0.00 per share, compared to net loss of $1.3 million, or $0.00 per share, a decrease largely due to higher gross profit, partially offset by increases in foreign exchange losses and unrealized losses on derivative instruments.
• Adjusted net income¹ of $9.9 million, or $0.01 per basic share, compared to an adjusted net income¹ of $0.4 million, or $0.00 per basic share, an increase of $9.6 million primarily due to an increased gross profit of $10.2 million.
• Cash and cash equivalents of $44.9 million and net debt¹ of $179.1 million, as at September 30, 2023.
• Consolidated production of 53,911 GEOs, including pre-commercial production of 10,693 GEOs from the Magino mine, was 17% higher compared to 45,939 GEOs from the third quarter of 2022. The increase in production was largely due to initial production from the Magino mine, as higher production from the Florida Canyon mine offset lower production from the Company’s Mexican mines.
• Cost of sales per gold ounce sold of $1,607, cash cost¹ per ounce of $1,383 and AISC¹ per ounce of $1,601 for the three months ended September 30, 2023 were lower compared to the prior year. Lower costs at Florida Canyon and initial production from Magino, more than offset higher costs at the Company’s Mexican operations.
• On September 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. A subsequent waiver was obtained on October 31, 2023 which now requires the Company to maintain a minimum cash balance of $10 million at all times until November 30, 2023 and additional funding to be raised by the same date. It was anticipated the Company would not be in compliance with certain financial covenants and accordingly obtained the waivers to prevent a default event which could trigger the Loan Facilities becoming immediately due and payable.
• On November 2, 2023, the Company announced the sale to Franco-Nevada Corporation and certain of its subsidiaries (“Franco-Nevada”) of an additional 1.0% net smelter return (“NSR”) royalty on its Magino mine, and its non-core royalty holdings in Canada and Mexico for an aggregate price of $29.5 million. Upon the closing of this transaction, Franco-Nevada will hold an aggregate 3.0% NSR royalty on the Magino mine.

Growth Highlights

Magino Mine

• The Magino mine achieved commercial production on November 1, 2023. Plant throughput has averaged 9,200 tonnes per day since the beginning of the fourth quarter, with tonnes per operating hour in-line with nameplate capacity.
• Plant ramp up was delayed due to 20 days of unplanned downtime in September. This was the result of facilitating equipment repairs and plant reliability issues centred on the process control system, which is comprised of several disparate systems. The plant has been largely operating at nameplate TPOH capacity since the beginning of the fourth quarter.
• During the three months ended September 30, 2023, the Magino mine produced 10,661 gold ounces and sold 11,454 gold ounces. Production was lower than expected due to the unplanned downtime, the delay in completing and commissioning the gravity circuit, and lower feed grades.
• As at September 30, 2023, the Company had fully incurred the $755 million (CA$980 million) estimated cost at completion. An additional $31 million in non-EAC expenditures were capitalized during the third quarter.
• 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.
• The 63,000-metre reserve development drill program began on schedule on August 1 and is expected to be completed by mid-2024. The goal is to increase proven and probable reserves by between 500,000 and 1.0 million ounces of gold.
• In addition, engineering work is underway to evaluate a potential plant expansion from the current nameplate capacity of 10,000 tonnes per day to 17,500 and 20,000 tonnes per day.

Florida Canyon Mine

• Permitting is well underway for Phase III of the South Heap Leach Pad, scheduled to be built in 2024, as well as permits to increase solution flow rates on to the leach pads to further increase gold recoveries.
• The Florida Canyon mine is expected to initiate civil earthworks for the Phase III pad in the fourth quarter of 2023.
• The proof-of-concept drill program on the East sulfide resource began on schedule on August 1, with the 8,300-metre Phase II drill program expected to be completed by mid-November at a cost of $4 million, with analysis work expected through the end of the year.
• Drilling concluded in the 1,250 metre West sulfide program in July and logging and analysis work is ongoing.
• An in-fill drill program is also underway on the oxide resources, which is expected to be completed by year end.

Third Quarter Financial & Operating Highlights

2023 Outlook Analysis

The Magino mine achieved commercial production on November 1, 2023, however due to a slower than planned commissioning and ramp up to commercial production and lower than planned gold grades processed, gold production is expected to be below the published production guidance. GEO production for the Company’s United States and Mexican operations are expected to total between 160,000 and 165,000 ounces, approximately 5% to 10% above the higher end of the production guidance range. As a result of the slower than planned ramp up and lower gold grades processed at the Magino mine, the cost of sales per ounce, cash cost¹ per ounce and AISC¹ per ounce are expected to be higher than guidance targets set at the beginning of the year. The Company remains on track to achieve the low end of consolidated production guidance for 2023.

Exploration cost guidance was updated at mid-year, increasing by $10 million, to account for exploration and reserve development programs underway at the Magino and Florida Canyon mines.

Estimates of future production, cost of sales per gold ounce sold, cash cost¹ per ounce, and AISC¹ per ounce are based on mine plans that reflect the method by which we are expected to mine reserves at each site. Actual gold production and associated costs may vary from these estimates due to a number of operational and non-operational risk factors. Refer to the “Risk Factors” section of the MD&A for more details.

This press release should be read in conjunction with the Company’s unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2023 and associated Management’s Discussion and Analysis (“MD&A”) 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}.

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.

“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 three and nine months ended September 30, 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 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), impairments (reversals) of mineral properties, plant and equipment, and other unusual or non-recurring items. Adjusted net 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) cash” 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) cash” 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.

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:

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

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

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 newest gold mine, Magino is expected to become Argonaut’s largest and lowest cost mine. Commercial production at Magino is the first step in transforming the Company as it enters a pivotal growth stage. The Company also has three additional operating mines including the Florida Canyon mine in Nevada, USA, where it is pursuing potential for redevelopment and additional growth, La Colorada mine in Sonora, Mexico and San Agustin mine in Durango, Mexico.