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Harte Gold Reports Second Quarter 2021 Results and Provides Operational Update

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Harte Gold Reports Second Quarter 2021 Results and Provides Operational Update

 

 

 

 

 

HARTE GOLD CORP. (TSX: HRT) (OTC: HRTFF) (Frankfurt: H4O) announced its results for the three months ended June 30, 2021.

 

The Company’s unaudited financial results for three months ended June 30, 2021 (“Q2 2021”), together with its Management’s Discussion and Analysis for the corresponding period, can be accessed under the Company’s profile on www.sedar.com and on the Company’s website at www.hartegold.com. All currency references in this press release are in Canadian dollars except as otherwise indicated.

 

Q2 2021 Highlights:

 

  • Gold production: Total production of 11,283 oz Au for Q2 2021, compared to 11,776 oz Au in Q1 2021. Q2 2021 production was adversely affected by a six-day mill closure towards the end of June due to a workplace transmission of COVID-19. Subsequent to the announcement, the workplace transmission was contained and the Company did not experience any further adverse effects.
  • Ore tonnes processed: Average throughput rate of 674 tonnes per day (tpd) for Q2 2021, compared to 716 tpd in Q1 2021. Ore processed was adversely affected by the six-day mill closure in June.
  • Head Grade: 6.1 g/t Au for Q2 2021, compared to 6.1 g/t Au in Q1 2021.
  • Revenues: $26.1 million in revenue from 11,855 gold ounces sold for Q2 2021, compared to $27.4 million from 12,349 gold ounces sold in Q1 2021.
  • Net earnings/(loss): $0.9 million net loss in Q2 2021, compared to net earnings of $5.8 million in Q1 2021.
  • Mine Operating Cash Flow1: $9.3 million in Q2 2021 as compared with $9.2 million in Q1 2021.
  • Gold hedge impact: Incurred $2.4 million expense in Q2 2021 for the settlement of 4,800 gold ounces hedged. Average Realized Gold Price1 after hedge in Q2 2021 was US$1,631/oz.
  • EBITDA1: $3.1 million for Q2 2021, compared to $1.6 million in Q1 2021.
  • Liquidity position: Cash on hand at June 30, 2021 was $11.9 million ($8.2 million at December 31, 2020). Based on the Company’s updated outlook and guidance for 2021, the Company will require additional funding by Q4 2021. The Company’s liquidity position is further discussed below under “Liquidity and Capital Resources”.

 

Frazer Bourchier, President and CEO, commented:

 

“Harte Gold’s production plateaued in Q2 2021 and was inline with the previous quarter’s operations. The plateau was due primarily to a labour shortage, reduced equipment reliability, and the need for more definition infill drilling and accelerated mine development. In the greater context, the operational turnaround continues to trend positively following restart of the mine in August of last year. Over the first half of 2021, the daily mill process rate improved 25%, the daily mining rate increased 42%, and the monthly gold production rate grew 11%, relative to performance in H2 2020. We continue to see positive trends for July, coupled with an upcoming Q3 2021 forecast estimating additional rate improvements of approximately 15% to 40% across key metrics. The overall value proposition disclosed in May 2021 remains intact and I still believe in the long-term value potential of this mine. To unlock and sustain elevated levels of operating performance, accelerating capital and some additional capital is required.

 

The Company remains focused on maintaining its liquidity while funding the critically important strategic review process which was commenced in May 2021 (the “Strategic Review Process”) in order to obtain the financing needed for the transformational growth of the Sugar Zone mine. Harte Gold will continue to evaluate all potential strategic avenues to unlock the underlying potential of this asset.”

 

_________________________________
1 Mine Operating Cash Flow, Average Realized Gold Price, EBITDA, are non-IFRS measures, refer to the definitions of non-IFRS measures in the Company’s MD&A for a reconciliation

 

Q2 2021 Operating and Financial Summary

 

3 months ended
June 30 March 31 December 31 September 30
Units 2021 2021 2020 2020
Operating Performance
Ore Tonnes Processed Tonnes 61,354 64,418 46,288 36,367
Average Daily Throughput tpd 674 716 503 649
Head Grade g/t 6.1 6.1 7.7 5.7
Recovery % 94.1% 93.7% 95.0% 93.4%
Gold Ounces Produced oz 11,283 11,776 10,835 6,218
Gold Ounces Sold oz 11,855 12,349 9,228 4,882
Key Financial Data
Revenues, net 000 $ 26,054 27,368 21,950 12,215
Mine Operating Cash Flow1 000 $ 9,343 9,152 8,679 4,690
EBITDA1 000 $ 3,101 1,606 1,935 (677)
Net income / (loss) 000 $ (920) 5,833 10,562 (11,750)
Net increase / (decrease) in cash 000 $ (9,184) 12,806 (13,185) 16,511
Cash on hand at end of period 000 $ 11,870 21,054 8,248 21,433
Key Statistics
Average Realized Gold Price1 US$/oz 1,798 1,768 1,843 1,898
Realized Gold Price After Hedge1 US$/oz 1,631 1,491 1,547 1,374
Cash Operating Cost C$/tonne
processed
277 287 291 210
Cash Cost1 US$/oz 1,159 1,183 1,122 1,177
AISC1 US$/oz 2,033 1,916 2,882 2,197
1) Non-IFRS measures. Refer to definition of non-IFRS measures in the Company’s MD&A for a reconciliation.

 

Operational Update

 

The following operational update covers the periods of both Q2 2021 and July 2021. Production figures for July have been reconciled. The Company has chosen to include July figures to illustrate continued operational trends at the Sugar Zone mine. July was a positive operating month, as detailed in following sections. However, longer-term sustainable throughput towards the end of the year and into 2022 necessitates the acceleration of certain capital and operating items. The Company has outlined this in recent disclosures and has summarized again in the following sections.

 

From An Operational Perspective, Mine Production Has Temporarily Plateaued

 

Mine performance for Q2 2021 was generally inline with performance seen for Q1 2021. Earlier in the year, the Company announced that, after collecting and then analyzing key operational metrics, it was determined that achieving sustainable throughput of 800 tpd at an average reserve grade would be achieved later than previously planned (see press release dated May 13, 2021).

 

The fundamental production plateau is consistent with what the Company has previously communicated, underpinned by the following:

 

  • Ongoing challenges with a labour shortfall, particularly with underground labour, and its related adverse impact on mine performance.
  • Criticality of accelerating definition infill drilling to better understand ore grade distribution.
  • Necessity of accelerating capital mine development to increase the number of working areas and to improve mine planning and flexibility.
  • Improving mobile equipment reliability and suitability, particularly the underground 2yd3 LHDs.

 

July Production Has Trended Positively Following Progressive Actions, Sustainable in the Near to Medium Term

 

Positive trends observed in July resulted in the Sugar Zone mine achieving the highest tonnes processed and gold production on record, when compared to previous monthly averages.

 

Mine production performance for July was underpinned by progressive actions taken by the Company over the past 3 quarters, including bolstering the mine workforce with temporary contracted labour, progressive and more expansive infill drilling, increasing sill development and associated production longhole drilling and mobilizing some additional mobile equipment to support development rates.

 

Average head grade also had a positive impact on ounces produced for July as the Company mined higher-grade areas of the north and south Sugar zones during a 3 to 4 month cycle during which there remained a greater proportion of higher-grade longhole ore stopes as compared with lower grade sill ore development. A greater contribution of the mine production for Q2 2021 was from sill development, which has provided the Company with greater flexibility in stoping material with more areas to draw from for July and through into Q4 2021.

 

July metrics were a general improvement over Q2 2021 on several fronts. Management reiterates that the Sugar Zone mine is currently in a temporary positive trend of the mining cycle which means more abundant stoping and higher-grade material is more readily available. However, with the passage of time and in the absence of a plan to accelerate further capital to unlock additional working areas, the Company expects mine production to revert slightly above more normalized levels observed during the previous two quarters.

 

 

Key Performance Metrics – Q3 2020 to July 2021
Unit Q3
2020
Q4
2020
Q1
2021
Q2
2021
July
2021
Daily Development m/day 9.2 11.4 14.0 10.0 10.0
Ore Tonnes Processed tpd 473 503 716 674 905
Head Grade g/t 5.7 7.7 6.1 6.1 7.2
Recovery % 93.4% 95.0% 93.7% 94.1% 94.7%
Avg. Monthly Gold Ounces Produced Avg. oz Au /
month
3,100 3,611 3,925 3,761 6,133

 

Accelerating Capital Plan Expected to Continue to Unlock Mine Production Growth

 

The Company has a plan that would allow it to achieve a sustainable 800 tpd run-rate and would support continued future growth towards 1,200 tpd. The plan includes accelerating capital originally scheduled for 2022 and beyond as well as recommencing the Feasibility Study expansion capital.

 

The “Accelerate Capital Plan”, subject to the outcome of the Strategic Review Process, is focused on four key areas:

 

 

Improvement Opportunities Action Plan and Benefits Timing to see Benefits
Accelerate Infill Drilling ·       Increase definition drilling metres

·       Increases understanding of the orebody and potential ounces per vertical metre

·       Provides more efficient budgeting and forecasting

Throughout 2022
Accelerate Mine Capital Development ·       Accelerate decline and lateral capital development up to 18 metres per day

·       Provides access to more mining areas

·       Represents a critical indicator for operational success

Q4 2021 to Q2 2022
Bolster Mine Workforce ·       Prioritize hiring and retention strategies for existing employees

·       Hire additional temporary contracted support in the near-term

Q3 2021 to Q4 2021
Enhance Underground Equipment ·       Pursue options to acquire, lease or rent additional mobile gear

·       Improves availability constraints and can be leveraged for future expansion

Q3 2021 to Q4 2021

 

Strategic Review Process Currently Underway:

 

The Company initiated the Strategic Review Process on May 13, 2021 focused on ensuring the Company’s liquidity and to fund the proposed Accelerated Capital Plan.

 

A Special Committee, comprised of the Company’s independent directors, Joseph Conway and Douglas Cater, was formed to support the continuation of the Strategic Review Process.

 

The Company will provide an update when further disclosure is required or otherwise appropriate.

 

Outlook and Guidance:

 

In order the ensure sufficient liquidity to support the Strategic Review Process, the Company has deferred the implementation of various mitigation measures that were aimed at addressing the production variance from plan experienced to date in 2021. The Company has also reduced certain sustaining and expansion capital expenditures, which may adversely impact production over the next six months. At this time, the Company is unable to provide updated 2021 production guidance as the Strategic Review Process continues to evolve, but believes its revised 2021 guidance, issued on May 13, 2021, is at risk and may not be achieved.

 

The Company will provide further updates on guidance as appropriate.

 

Liquidity and Capital Resources:

 

  • The Company ended Q2 2021 with a cash balance of $11.9 million.
  • The continuation of the Company’s Strategic Review Process was facilitated by BNP’s agreement to refrain from enforcing its rights and remedies under the BNP Debt Facilities.
    • On June 30, 2021, the Company obtained a 30-day waiver of its financial covenant requirements pursuant to the BNP Debt Facilities. In addition, BNP deferred the due date of (i) the principal and interest payments under the BNP Debt Facilities originally scheduled for June 30, 2021, and (ii) the settlement payment under the gold hedge program originally scheduled for July 2, 2021 to July 30, 2021.
    • On July 30, 2021, the Company entered into a forbearance agreement with BNP (the “Forbearance Agreement”) pursuant to which BNP agreed, subject to certain terms and conditions, to refrain from enforcing its rights and remedies under the BNP Debt Facilities (including scheduled principal, interest and gold hedge payments) until September 30, 2021. BNP also agreed, subject to the terms of the Forbearance Agreement, to forbear from exercising its rights and remedies under the BNP Debt Facilities in respect of or arising out of or relating to certain defaults or events of default under the BNP Debt Facilities, including financial covenant breaches, which are anticipated to occur prior to September 30, 2021, until the earlier of (i) September 30, 2021, and (ii) the occurrence or existence of any terminating event, which includes bankruptcy events, defaults not covered by the Forbearance Agreement and other customary terms.
  • On August 3, 2021, the Company received notice from Appian that events of default have occurred under the Appian Debt Facility and related financing agreements. Among other alleged events of default, Appian cite the Company’s default under the BNP Debt Facilities which triggers a cross-default under the Appian financing agreements. Pursuant to the terms of the Intercreditor Agreement dated August 28, 2020 between Harte Gold, Appian and BNP, Appian is prohibited, without the prior written consent of BNP, from taking any Enforcement Action (as defined in the Intercreditor Agreement) until a minimum of 135 days has passed from the date on which Appian delivers a notice to BNP. The terms of the Appian Debt Facility provide for default interest at a rate per annum equal to 19.0% from the date of default.
  • To support the continuation of the Strategic Review Process, the Company is actively managing its liquidity and capital resources, including reducing certain sustaining and expansion capital expenditures, which may adversely impact production over the next six months. The Company does not expect that it will generate sufficient cash from operations in the next 12 months to fully fund planned investment activities and debt service obligations.
  • There can be no assurance that the Strategic Review Process will result in any transaction, whether BNP will continue to forbear from exercising its rights and remedies on expiry of the Forbearance Agreement or what the terms or timing of such a transaction or such continued forbearance might be, or that the Company will be able to continue as a going concern.

 

About Harte Gold Corp.

 

Harte Gold holds a 100% interest in the Sugar Zone mine located in White River, Canada. The Sugar Zone Mine entered commercial production in 2019. The Company has further potential through exploration at the Sugar Zone Property, which encompasses 81,287 hectares covering a significant greenstone belt. Harte Gold trades on the TSX, on the OTC and on the Frankfurt Exchange.

 

Posted August 5, 2021

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