Allied Nevada Gold Corp ANV

Ben Kramer-Miller on ANV Earnings Report

[goldguy007]

The author sees possible contrarian buying opportunity.
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https://seekingalpha.com/article/2636045-update-allied-nevadas-earnings?uprof=51&dr=1

Ben Kramer-Miller

Gold & precious metals, macro, research analyst, deep value

Update: Allied Nevada's Earnings

Nov. 4, 2014 11:03 AM ET | About:Allied Nevada Gold Corp (ANV)

Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in ANV over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Summary

• Allied Nevada reported a $60 million loss related to a write-down in inventories.
• This is slightly worse than my expectations as production costs have risen.
• Shares are trading horribly as the company's debt casts doubt on its future; a contrarian buying opportunity may be developing.

Allied Nevada Gold (NYSEMKT:ANV) just reported its Q3 financial results. The company lost $60 million due to a $70 million inventory write-down. Otherwise the company would have lost just $13 million. Furthermore, the company burned through a lot of its cash, which has been a significant issue, and at the end of the quarter it had just $5 million left.

Given the company's high debt load and given the fact that its production costs are rising, I'm somewhat surprised that the company hasn't gone to the market in order to raise additional capital. However, given the way the stock is trading investors are clearly expecting it. The recent decline in the gold price hit Allied Nevada especially hard with shares down 40% in the past 5 trading sessions.

Investors will recall that I warned that Allied Nevada's debt issues would become a significant issue if the gold price didn't rise in spite of the fact that its flagship mine--Hycroft in Nevada--is not such a high cost producer. The company's debt and related obligations have been draining cash and raising its effective cost of production by ~$250/oz., and this is why the company is not making money even with the gold price $100/oz. higher.

Given the recent decline in the gold price I think the company will be forced to raise capital in the very near future, and I suspect that it is about to either issue a bunch of stock, sell a royalty or stream, or sell itself at a discount to a well-capitalized mining company. This is well known in the investment community, sentiment has become almost universally bearish, and I am really tempted to take a contrarian position right now even though there are numerous unknowns and near-term catalysts that can drive shares lower.