Mr.
Pete Dougherty reports
ARGONAUT GOLD ANNOUNCES FIRST QUARTER 2020 OPERATING AND FINANCIAL RESULTS
Argonaut Gold Inc. has released its operating and financial results for the first quarter ended March 31, 2020. The company reports quarterly production of 41,536 gold equivalent ounces (GEOs) (2), a quarterly net cash (1) increase of $6.0-million, cash flow from operating activities before changes in operating working capital of $14.8-million, net loss of $9.5-million or loss per share of five cents, and adjusted net income (1) of $8.4-million or adjusted earnings per share (1) of five cents. All dollar amounts are expressed in U.S. dollars, unless otherwise specified.
Chief executive officer commentary
Pete Dougherty, president and CEO, stated: "We are starting to see the benefits of the operational changes we implemented in late 2019 and early 2020 and expect to see the positive impact of these benefits throughout the balance of the year. During the quarter, we delivered strong cash flow that allowed us to reduce our accounts payable balance by $10-million, reduce our debt by $3-million, invest nearly $13-million in capital projects and still increase our cash balance by $3-million. While mining, crushing and stacking operations were ceased in early April due to the COVID-19 restrictions in Mexico, we are preparing to restart these activities on May 18, 2020. The safety and security of our work force and the communities in which we operate is paramount and we are going above and beyond the government requirements for reopening full operations. Given the nature of heap leach operations, metal production and sales have not been impacted to date. Also, since we were ahead on our leach pad construction year to date, we will have the opportunity to quickly ramp production back up to planned levels given our ability to place ore very close to plastic."
Notes:
- These are non-IFRS (international financial reporting standards) measures.
-
GEOs are based on a conversion ratio of 75 to 1 for silver to gold for 2019 and 80 to 1 for 2020. The silver-to-gold conversion ratio is based on the three-year trailing average silver-to-gold ratio. These are the referenced ratios for each year throughout the release.
Key operating and financial statistics for the first quarter of 2020 are outlined in the accompanying table.
Three months ended March 31,
2020 2019
Financial data (in millions, except earnings per share)
Revenue $66.6 $73.9
Gross profit $13.9 $11.5
Net income (loss) ($9.5) $4.1
Earnings (loss) per share -- basic ($0.05) $0.02
Adjusted net income (1) $8.4 $2.4
Adjusted earnings per share -- basic (1) $0.05 $0.01
Cash flow from operating activities before changes in
non-cash operating working capital $14.8 $18.0
Cash and cash equivalents $41.8 $28.1
Net cash (1) $34.8 $14.1
Gold production and cost data
GEOs loaded to the pads (2) 97,180 76,840
GEOs projected recoverable (2)(3) 44,284 48,181
GEOs produced (2)(4) 41,536 54,169
GEOs sold (2) 42,204 56,674
Average realized sales price $1,585 $1,309
Cash cost per gold ounce sold (1) $967 $892
All-in sustaining cost per gold ounce sold (1) $1,323 $1,123
1. Non-IFRS measures.
2. GEOs are based on a conversion ratio of 75 to 1 for silver to gold for 2019 and 80 to
1 for 2020. The silver-to-gold conversion ratio is based on the three-year trailing
average silver-to-gold ratio.
3. Expected recoverable GEOs are based on the assumptions and parameters as set forth in
the El Castillo complex technical report dated March 27, 2018, and the La Colorada
gold-silver mine technical report dated March 27, 2018. In periods where the company
mines and processes material not specifically defined in a technical report (for
example, low-grade stockpile material or run-of-mine ore), management uses its best
estimate of recovery based on the information available. The El Castillo mine is
currently processing run-of-mine ore and has several years of data to support run-of-
mine recoveries.
4. Produced ounces are calculated as ounces loaded to carbon.
First quarter 2019 and recent company highlights:
-
Corporate:
-
Announced friendly, at-market merger with Alio Gold Inc. to create a diversified, North American intermediate producer;
- Increased net cash by $6.0-million (non-IFRS);
-
Social responsibility:
-
Participated in a signing ceremony with the Michipicoten First Nation for the community agreement for the Magino project;
- Delivered Argonaut's 3,000th academic scholarship in Mexico;
- Initiated a local program with the community of Cerro del Gallo for the cleaning of the San Anton de las Minas River in Guanajuato, Mexico;
- Provided 150 food support pantries for families in San Juan del Rio, a community near the El Castillo complex;
- Held the opening ceremony for the Argonaut Community House in La Colorada, a centre that the company donated to the community that is open for local stakeholders to interact with Argonaut team members and attend courses;
-
El Castillo complex:
-
First quarter production of 28,508 GEOs:
-
El Castillo production of 14,729 GEOs;
-
San Agustin production of 13,779 GEOs;
-
Zero lost-time incidents;
- Initiated construction of two El Castillo leach pad expansions, which were approximately 90 per cent and 40 per cent complete at May 1, 2020;
- Averaged nearly 30,000 tonnes per day crushing and stacking at San Agustin;
-
La Colorada:
-
First quarter production of 13,028 GEOs;
- Initiated construction of a leach pad expansion, which was approximately 80 per cent complete at May 1, 2020;
-
Cerro del Gallo:
-
Prepared revised permit applications that are ready to submit once the regulatory agency staff returns to work following the temporary closure of these services due to COVID-19;
-
Magino:
-
Completed over 25,000 metres of drilling in phase 1 drill program targeting deeper, higher-grade mineralization adjacent to and below the proposed pit;
- Continued to intersect high-grade mineralization below the proposed pit (see press release dated March 3, 2020).
Financial results -- first quarter of 2020
Revenue for the three months ended March 31, 2020, was $66.6-million, a decrease from $73.9-million for the three months ended March 31, 2019. During the first quarter of 2020, gold ounces sold totalled 40,169 at an average realized price per ounce of $1,585, compared with 54,779 gold ounces sold at an average realized price per ounce of $1,309 during the same period of 2019. Gold ounces sold for the three months ended March 31, 2020, decreased compared with the same period in 2019, primarily due to a decrease in gold ounces produced at the El Castillo mine due to a decrease in ore tonnes to leach pads and at the La Colorada mine due to a decrease in grade.
Production costs for the first quarter of 2020 were $41.6-million, a decrease from $51.1-million in the first quarter of 2019, primarily due to a decrease in gold ounces sold. Cash cost per gold ounce sold (non-IFRS) was $967 in the first quarter of 2020, an increase from $892 in the same period of 2019, primarily due to an increase in cash cost per gold ounce sold at the El Castillo and La Colorada mines due to lower ounces sold at both mines and lower grades processed at the La Colorada mine. The depreciation, depletion and amortization (DD&A) expense included in cost of sales for the first quarter of 2020 totalled $11.1-million, a decrease from $11.9-million in the first quarter of 2019, due to a decrease in gold ounces sold offset by the increase in average DD&A expense per ounce due to the significant capital additions during 2019.
General and administrative expenses for the first quarter of 2020 were $4.1-million, an increase from $3.8-million for the same period of 2019, primarily due to Alio acquisition-related costs.
Losses on derivatives for the first quarter of 2020 were $1.8-million, compared with gains of $200,000 in the first quarter of 2019, primarily due to unrealized mark-to-market losses on the company's outstanding zero-cost collar commodity contracts entered into in August, 2019.
Other expense for the first quarter of 2020 was $5.9-million, a decrease from other income of $600,000 in the first quarter of 2019, due to differences in foreign currency translation effects as a result of the significant weakening of the Mexican peso and Canadian dollar against the U.S. dollar during the quarter.
Income tax expense for the first quarter of 2020 was $11.2-million, compared with $3.9-million in the same period of 2019. The change is due to the foreign exchange effects of the weakening Mexican peso on the calculation of deferred taxes during the first quarter of 2020.
Net loss for the first quarter of 2020 was $9.5-million or five cents per basic share, a decrease from net income of $4.1-million or two cents per basic share for the first quarter of 2019. Adjusted net income for the first quarter of 2020 was $8.4-million or adjusted earnings per basic share of five cents, an increase from adjusted net income of $2.4-million or adjusted earnings per basic share of one cent for the first quarter of 2019 (non-IFRS).
Operational results -- first quarter of 2020
During the first quarter of 2020, the company achieved quarterly production of 41,536 GEOs at a cash cost of $967 per gold ounce sold and an all-in sustaining cost of $1,323 per gold ounce sold, compared with 54,169 GEOs at a cash cost of $892 per gold ounce sold and an all-in sustaining cost of $1,123 per gold ounce sold during the first quarter of 2019 (non-IFRS).
The El Castillo complex produced 28,508 GEOs at a cash cost of $941 per gold ounce sold during the first quarter of 2020, compared with 38,067 GEOs at a cash cost of $867 per gold ounce sold during the first quarter of 2019 (non-IFRS). Higher cash costs per ounce are related to lower gold ounces sold, driven by a planned reduction in recovery rates at the El Castillo mine due to the processing of a higher percentage of transitional and sulphide ores and switching to run-of-mine ore compared with crushed ore.
La Colorada produced 13,028 GEOs at a cash cost of $1,021 per gold ounce sold during the first quarter of 2020, compared with 16,102 GEOs at a cash cost of $952 per gold ounce sold during the first quarter of 2019 (non-IFRS). Higher cash cost per ounce is due to lower gold ounces sold as a result of lower gold grades processed.
Mr. Dougherty commented: "We achieved higher-than-expected production at the El Castillo mine, similar production to plan at the La Colorada mine and lower-than-planned production at the San Agustin mine. On a consolidated basis, first quarter production was generally in line with expectations. Costs per ounce were higher than anticipated since a higher portion of the quarterly production was from El Castillo and a lower portion of production was from San Agustin -- our highest- and lowest-cost operations, respectively. At the El Castillo complex, we have made positive strides in lowering our unit cost per tonne processed, and this will continue to be a focus of the organization."
FIRST QUARTER 2020 EL CASTILLO COMPLEX OPERATING STATISTICS
Three months ended March 31,
2020 2019
Mining (in 000s, except waste/ore ratio)
Tonnes ore El Castillo 1,922 2,288
Tonnes ore San Agustin 2,709 1,661
Tonnes ore 4,631 3,949
Tonnes waste El Castillo 3,414 3,805
Tonnes waste San Agustin 1,869 1,317
Tonnes waste 5,283 5,122
Tonnes mined El Castillo 5,336 6,093
Tonnes mined San Agustin 4,578 2,978
Tonnes mined 9,914 9,071
Tonnes per day El Castillo 59 68
Tonnes per day San Agustin 50 33
Tonnes per day 109 101
Waste/ore ratio El Castillo 1.78 1.66
Waste/ore ratio San Agustin 0.69 0.79
Waste/ore ratio 1.14 1.30
Leach pads (in 000s)
Tonnes crushed East to leach pads El Castillo 214 1,073
Tonnes crushed West to leach pads El Castillo 3 1,257
Tonnes direct to leach pads El Castillo 1,732 0
Tonnes crushed to leach pads San Agustin 2,733 1,691
Tonnes to leach pads 4,682 4,021
Production
Gold grade loaded to leach pads El Castillo (g/t) (1) 0.55 0.39
Gold grade loaded to leach pads San Agustin (g/t) (1) 0.36 0.47
Gold grade loaded to leach pads (g/t) (1) 0.44 0.43
Gold loaded to leach pads El Castillo (oz) (2) 34,471 29,344
Gold loaded to leach pads San Agustin (oz) (2) 31,255 25,705
Gold loaded to leach pads (oz) (2) 65,726 55,049
Projected recoverable GEOs loaded El Castillo (4) 13,072 20,337
Projected recoverable GEOs loaded San Agustin (4) 22,781 18,026
Projected recoverable GEOs loaded (4) 35,853 38,363
Gold produced El Castillo (oz) (2)(3) 14,435 22,887
Gold produced San Agustin (oz) (2)(3) 12,835 14,084
Gold produced (oz) (2)(3) 27,270 36,971
Silver produced El Castillo (oz) (2)(3) 23,545 28,210
Silver produced San Agustin (oz) (2)(3) 75,504 54,030
Silver produced (oz) (2)(3) 99,049 82,240
GEOs produced El Castillo (3) 14,729 23,263
GEOs produced San Agustin (3) 13,779 14,804
GEOs produced (3) 28,508 38,067
Gold sold El Castillo (oz) (2) 13,626 22,790
Gold sold San Agustin (oz) (2) 13,461 15,906
Gold sold (oz) (2) 27,087 38,696
Silver sold El Castillo (oz) (2) 23,545 28,210
Silver sold San Agustin (oz) (2) 85,137 56,634
Silver sold (oz) (2) 108,682 84,844
GEOs sold El Castillo 13,920 23,166
GEOs sold San Agustin 14,525 16,661
GEOs sold 28,445 39,827
Cash cost per gold ounce sold El Castillo (5) $1,099 $918
Cash cost per gold ounce sold San Agustin (5) $782 $794
Cash cost per gold ounce sold (5) $941 $867
1. G/t refers to grams per tonne.
2. Oz refers to troy ounce.
3. Produced ounces are calculated as ounces loaded to carbon.
4. Expected recoverable GEOs are based on the assumptions and parameters as set forth in
the El Castillo complex technical report dated March 27, 2018. In periods where the
company mines and processes material not specifically defined in a technical report
(for example, run-of-mine ore), management uses its best estimate of recovery based
on the information available. The El Castillo mine is currently processing run-of-
mine ore and has several years of data to support run-of-mine recoveries.
5. Non-IFRS measures.
Summary of production
results at the El Castillo complex
During the first quarter of 2020, the El Castillo complex produced 25 per cent fewer GEOs at a cash cost per gold ounce sold (non-IFRS) that was 9 per cent higher compared with the first quarter of 2019. Lower production was driven by a planned reduction in recovery rates at the El Castillo mine due to the processing of a higher percentage of transitional and sulphide ores and the switch to run-of-mine ore compared with crushed ore. Higher cash costs were primarily due to lower gold ounces sold. On a unit cost basis, El Castillo and San Agustin experienced a cost per tonne processed reduction of 14 per cent and 15 per cent, respectively, during the first quarter of 2020 compared with the first quarter of 2019. San Agustin averaged nearly 30,000 tonnes per day through the crushing and stacking circuit during the first quarter of 2020 following the expansion of this circuit from 20,000 tonnes per day to 30,000 tonnes per day in 2019. This led to an inventory build on the heap leach pad at San Agustin during the first quarter that is expected to be drawn down over the course of 2020.
FIRST QUARTER 2020 LA COLORADA OPERATING STATISTICS
Three months ended March 31,
2020 2019
Mining (in 000s, except waste/ore ratio)
Tonnes ore 947 872
Tonnes waste 4,683 5,966
Total tonnes 5,630 6,838
Tonnes per day 62 76
Waste/ore ratio 4.95 6.84
Leach pads (in 000s)
Tonnes crushed to leach pads 966 793
Tonnes direct to leach pads 0 89
Production
Gold grade loaded to leach pads (g/t) (1) 0.35 0.44
Gold loaded to leach pads (oz) (2) 11,022 12,433
Projected recoverable GEOs loaded (4) 8,431 9,818
Gold produced (oz) (2)(3) 12,349 15,372
Silver produced (oz) (2)(3) 54,315 54,773
GEOs produced (3) 13,028 16,102
Gold sold (oz)2 (2) 13,082 16,083
Silver sold (oz) (2) 54,198 57,302
GEOs sold 13,759 16,847
Cash cost per gold ounce sold (5) $1,021 $952
1. G/t refers to grams per tonne.
2. Oz refers to troy ounce.
3. Produced ounces are calculated as ounces loaded to carbon.
4. Expected recoverable GEOs are based on the assumptions and parameters as set forth in
the La Colorada gold-silver mine technical report dated March 27, 2018. In periods
where the company mines and processes material not specifically defined in a
technical report (for example, low-grade stockpile material), management uses its
best estimate of recovery based on the information available.
5. Non-IFRS measures.
Summary of production
results at La Colorada
During the first quarter of 2020, La Colorada produced 19 per cent fewer GEOs at a cash cost per gold ounce sold (non-IFRS) that was 7 per cent higher compared with the first quarter of 2019. Lower production was primarily related to lower grades processed, as the company experienced difficulty meeting planned mining rates due to increased water at the bottom of the pit. This led to a reduction of phase 2 ore tonnes, which were supplemented with ore from low-grade stockpiles in order to maintain crusher feed. The company has added additional pumping at La Colorada to confront the water challenges in the pit. The company anticipates that production at La Colorada will dip lower in the second quarter of 2020 compared with the first quarter of 2020, since mining and placement of ore tonnes from phase 2 (the bottom) of the El Creston pit is currently behind schedule. The company anticipates stronger production during the second half of 2020, as mining returns to the upper benches of the El Creston pit. Higher cash cost per ounce was primarily due to lower gold ounces sold as a result of lower grades processed.
Alio transaction
The company mailed and filed the joint circular in connection with its friendly, at-market merger with Alio on April 22, 2020, and will hold its annual and special meeting in a virtual-only format on May 20, 2020. Leading proxy advisory firms Institutional Shareholder Services Inc. (ISS) and Glass, Lewis & Co. have both recommended that shareholders vote for the transaction. The company anticipates that the transaction will close in June, 2020.
COVID-19 update
As the municipalities near the company's operations have low or no reported COVID-19 transmission, Argonaut is preparing to restart mining, crushing and stacking operations on May 18, 2020, and anticipates that it will take approximately one week to fully ramp up to normal run rates. As Argonaut operates heap leach mines, processing of leach solution and metal production and sales have continued since the original government decree to cease non-essential businesses on March 31, 2020. Argonaut has developed and implemented protocols for the protection of its work force and the communities where it operates.
Potential timing of guidance update
Due to the uncertainty with respect to the future developments of the COVID-19 outbreak, including the duration, severity and scope of the outbreak, Argonaut withdrew its full-year guidance across all operations on April 1, 2020. The company currently anticipates that it will provide updated guidance following the closing of the Alio transaction, but cautions that this timing is subject to change depending on future developments of the COVID-19 outbreak.
First quarter 2020 operational and financial results conference call and webcast
The company will host the first quarter 2020 conference call and webcast on May 13, 2020, at 9 a.m. ET.
First quarter conference call information:
Toll-free (North America): 1-888-231-8191
International: 1-647-427-7450
Conference ID: 1002839
Webcast: Argonaut's website
First quarter conference call replay:
Toll-free replay call (North America): 1-855-859-2056
International replay call: 1-416-849-0833
The conference call replay will be available from 12 p.m. ET on May 13, 2020, until 11:59 p.m. ET on May 20, 2020.
Additional information
This press release should be read in conjunction with the company's unaudited interim condensed consolidated financial statements for the three months ended March 31, 2020, and its associated MD&A (management's discussion and analysis) for the same period, which are available on the company's website and under the company's profile on SEDAR.
Qualified person, technical information and mineral properties reports
Technical information included in this release was supervised and approved by Brian Arkell, Argonaut's vice-president of exploration and a qualified person under National Instrument 43-101. For further information on the company's material properties, please see the reports listed below on the company's website or on SEDAR:
El Castillo complex: NI 43-101 technical report on resources and reserves, El Castillo complex, Durango, Mexico, dated March 27, 2018 (effective date of March 7, 2018)
La Colorada mine: NI 43-101 technical report on resources and reserves, La Colorada gold-silver mine, Hermosillo, Mexico, dated March 27, 2018 (effective date of Dec. 8, 2017)
Magino gold project: Feasibility study technical report on the Magino project, Ontario, Canada, dated Dec. 21, 2017 (effective date of Nov. 8, 2017)
Cerro del Gallo project: Prefeasibility study technical report on the Cerro del Gallo project, Guanajuato, Mexico, dated Jan. 31, 2020 (effective date of Oct. 24, 2019)
About Argonaut Gold
Inc.
Argonaut is a Canadian gold company engaged in exploration, mine development and production. Its primary assets are the El Castillo mine and the San Agustin mine, which together form the El Castillo complex in Durango, Mexico, and the La Colorada mine in Sonora, Mexico. Advanced exploration projects include the Cerro del Gallo project in Guanajuato, Mexico, and the Magino project in Ontario, Canada. The company continues to hold the San Antonio advanced exploration project in Baja California Sur, Mexico, and several other exploration-stage projects, all of which are located in North America.
We seek Safe Harbor.
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