Argonaut Gold: Shares Plummet To An All-Time Low On Disappointing Guidance

Argonaut Gold Inc. (TSX: AR) earlier this week unveiled its projections for 2024, toplined by expected consolidated gold production for 2024 in a range between 225,000 and 250,000 gold equivalent ounces (GEOs), indicating a substantial 13% to 25% increase over the previous year.

For comparison, the firm was able to produce 197,511 GEOs in 2023 on 200,000 to 230,000 gold equivalent ounce guidance.

That production estimate however was the highlight of the guidance, with the remainder resulting in the equity crashing 35% on the day of the release, and further sinking in the days since, with the equity marking a new all-time low.

While the cost of sales and cash costs per ounce of gold sold are expected to remain relatively steady compared to 2023, all-in-sustaining costs (AISC) per ounce sold are forecasted to rise. AISC is expected to land between $1,950 – $2,050 per ounce sold, which has its higher end exceeding the current price of gold.

This increase is attributed to sustaining capital expenditures at both the Magino and Florida Canyon sites.

“Operationally, our near-term focus continues to be the ramp up of the Magino mine. The medium-term goal is to expand the reserve base and mill throughput in order to increase production to the 200,000 to 250,000 ounce per year range, while reducing the cost structure. Given the grade of the deposit, scale is important to drive strong free cash flows. We anticipate completing a re-financing of our current debt package by the end of the first quarter to provide sufficient liquidity during this ramp-up phase and for our future growth objectives,” said CEO Richard Young.

The year 2023 is said to have marked a significant milestone for Argonaut with the commissioning of its flagship asset, the Magino mine. The ramp-up process is slated to continue throughout 2024, with mining and milling rates expected to align with the NI 43-101 Technical Report 2022 in the latter half of the year.

Despite progress, the company faces challenges with higher dilution rates than initially anticipated in the high-grade sections of the ore body. This discrepancy is expected to result in a 5% to 10% reduction in average grade to the mill over the next 2 to 3 years compared to estimates included in the technical report.

The selective mining of high-grade sections outlined in the report proves to be less achievable than initially predicted. Consequently, lower grades stemming from pit sequencing and reduced mining and processing rates in the first half of 2024 are expected. However, the company aims to counterbalance this with higher mill throughput in the latter half of the year following optimization efforts.

RBC Capital Markets put out a “negative” rating on Argonaut Gold following the release of the guidance, citing that the guidance reflects “ongoing near term challenges as Magino continues too ramp up, with steady state operations expected to be achieved in H2 2024.”

Despite these challenges, Argonaut remains optimistic about its future prospects. Gold recoveries are on track, and while unit costs are projected to be higher in 2024, the company anticipates a decline in costing over the subsequent 12 to 18 months as the ramp-up process progresses.

An updated technical report reflecting the latest findings is expected to be filed in the second half of 2024.

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.

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