Argonaut Gold Might Have A Gigantic Cash Problem Ahead, Magino’s First Gold Pour Not Yet In Sight

Argonaut Gold Inc. (TSX: AR) announced late Wednesday its operating and financial results for the second quarter ended June 30, 2022. The report highlights a topline revenue figure of US$111.4 million, a decline from US$120.2 million for the same comparable period last year.

The revenue came from selling 59,241 gold equivalent ounces at an average realized sales price of US$1,884 per ounce, compared to Q2 2021’s 65,651 ounces at US$1,812 per ounce.

Production also dipped to 59,192 gold equivalent ounces from last year’s 63,750 ounces, but at a higher all-in sustaining cost of US$1,474 per ounce versus last year’s US$$1,203 per ounce.

“We were slightly ahead of our operational budget in terms of GEO production during the second quarter, which yielded over 59,000 GEOs, albeit at a slightly higher cost than budgeted due to inflationary pressures on input costs,” said CEO Larry Radford.

Gross margin for the quarter also dropped to 17.8% coming from last year’s 33.1%. Further down, net income for the quarter came in at US$18.4 million compared to last year’s US$21.8 million. The quarterly income translates to US$0.06 earnings per share.

On an adjusted basis, net income slumped to US$7.3 million for the quarter, down from US$22.7 million in the year-ago period. Adjusted earnings per share came in at US$0.02, down from last year’s US$0.07 per share.

Following the earnings release, the share price dropped by as much as 8.6%.

The Magino Conundrum

Now, the mining firm said it is also “tracking well against our most recent Magino capital estimate to completion of $920 million,” after it believes to have put a financing package together that “fully finances the Magino construction project.”

“With the financing behind us and what I believe to the right team now in place, I feel Argonaut is in a much better position to execute on our business plan,” Radford noted.

This is an increase from the estimated $800 million announced at the tail-end of 2021, itself a huge jump from previous estimate of $510 million in October 2020.

The financing package includes the dilutive $195 million financing announced back in June 2022, reflecting a 43.6% discount to the five day volume weighted average price at the time. The firm also entered into a $250 million debt facility binding commitment expected to close in Q3 2022.

The gold mining firm also expanded forward sales contracts started in Q1 2022 by entering into a gold price protection term loan debt facility: capping the price at US$1,860 per ounce for 25,000 gold ounces per quarter for the first six quarters starting Q3 2022 and 15,000 gold ounces per quarter for the remaining ten quarters. Effectively, it totals to US$558.0 million over four years.

However, the firm said that out of the $920 million estimated cost to complete the Magino construction, $510.1 million has been spent and $688.1 million has been committed.

At the end of the quarter, the project is estimated to be “approximately 54.8% complete.” The firm blames a 23-day delay to its process facility EPC contractor experiencing province-wide strike of several trades, including crane operators and carpenters, while its actual impact on the construction “has not yet been assessed.”

“To date, this delay claim has neither been accepted nor captured in a definitive schedule, the estimated first gold pour has not yet been determined; however, indications are that first gold is expected to be delayed from March 2023 to April 2023,” the company reported.

Aggravating the situation is the company’s declining cash situation: the firm generated US$23.3 million operating cash flow (down from last year’s US$39.3 million) and ended the quarter with US$75.8 million balance on cash and cash equivalents (down from last year’s US$216.0 million).

Net cash is already at a negative when it ended the quarter with a US$4.2 million deficit from its positive balance of US$119 million at year end.

For full-year 2022, the firm’s capital guidance is US$453 – US$486 million, with the Magino project taking the lion’s share of US$400 – US$423 million, having already spent US$207 million during the first half. For comparison, capital guidance for the Magino property was earmarked at US$190-US$200 million as announced by the firm in Q2 2021.

The company is however optimistic in meeting its 2022 full-year production guidance figure between 200,000 and 230,000 ounces. But it is hiking its cost guidances from previously announced expectations: AISC to be US$1,500 – US$1,600 per ounce sold from US$1,415 – US$1,525, while cash costs to land US$1,200 – US$1,300 from US$1,100 – US$1,190.

For the first half of the year, 114,706 gold equivalent ounces have been produced so far with an AISC of US$1,453 per ounce and cash costs of US$1,202 per ounce.

Argonaut Gold Inc. last traded at $0.55 on the TSX.

Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

Leave a Reply