Summary
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Allied Nevada has encountered acid leach material, which resulted in less ore being placed on the leach pad and a slower than expected recovery.
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I did not anticipate this, and this is just another negative update on the Hycroft project.
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I wish I could be more positive and optimistic, but the company’s access to liquidity is fading fast and I expect an capital raise this winter.
Allied Nevada Gold (NYSEMKT:ANV) has released another update on its Hycroft gold and silver mine in Nevada, and unfortunately it's once again quite pessimistic news. In late October and November, Allied Nevada encountered "a significant amount of acid leach material" in the planned mining areas, which resulted in a worse-than-expected pace of drilling and processing the ore and lowered sales guidance.
This obviously had a negative impact on production as Allied Nevada was unable to place the planned amount of ore on the leach pads. On top of that, the recovery of the gold and silver is going much slower than anticipated. Allied Nevada has only recently seen solution breakthrough and it estimates the processing speed is approximately one month slower than usual.
The impact of this chalky acid ore cannot be underestimated as it affected the amount of ore placed on the leach pad and also the time needed to get the gold and silver out of the ore. The total impact will be approximately 10,000 ounces of gold and 100,000 ounces of silver, but the majority will be recovered in the first quarter of 2015, so if gold prices are higher then, it will have been a blessing in disguise.
However, Allied Nevada was already in a not-so-good financial shape and, as feared, its cash levels have gone down to an alarming level. As of at the end of November, the company had just $1.3M in cash and $10M in restricted cash (as part of the revolving credit facility). Another $12.8M can be drawn from the revolving credit facility, but I'm afraid Allied Nevada will very likely have to raise cash in the very near future. It's far from certain that the company will find another lender to lend it more cash, so shareholders should be mentally preparing themselves to see another equity dilution.
ANV closed down 11.54% Friday at $1.38.