ARGONAUTGOLD wrote: The 2024 outlook is not disappointing. It’s important to note that the elevated Sustaining Capital Expenditure (CapEx) costs at Magino are associated with the finalization of the tailings management facility 1B, the assay lab, and other infrastructure and major spare parts. These were initially postponed from the original capital cost estimate to preserve cash during the mine’s construction.
The company anticipates a decrease in the cost per tonne at Magino Gold as positions are filled with Argonaut Gold employees and as the optimizations and expansions reach completion. The company has already implemented the OREPro3d technology and a fleet management system in the first half of 2024, which are expected to enhance grade control and drill & blast techniques.
At Florida Canyon, the increased Sustaining Capital Expenditure (CapEx) costs are attributed to the construction of the third heap leach pad and additional processing capacity to enhance flow rates and start reducing the large inventory of gold placed on the pads. The costs of exploration will assist in funding the drilling process to identify the 5 million oxide ounce deposit at Florida Canyon.
Regarding the Mexican operations, the company has reiterated that a financial advisor has been appointed to evaluate strategic alternatives for the Mexican operations, which may include the sale of one or more of the assets. The disposal of the Mexican assets will provide the company with extra funds, thereby bolstering their balance sheet.
Evaluating the operation without taking into account the prepaid advances and high Capital Expenditure (CapEx) is crucial. This is because the prepaid advances are limited, and CapEx is expected to decrease substantially in the upcoming years.
Estimated production for 2024, excluding both Prepaid Advances and Capital Expenditure:
Magino Gold Mine:
Ore Mined: 5,200 '000t ($72,540,000.00)
Waste Mined: 15,300 '000t ($54,315,000.00)
Total Mined: 20,500 '000t
Grade Mined: 0.95 g/t
Contained oz Mined: 158,825 oz
Total Placed/Milled: 3,500 '000t ($26,775,013.20)
Processed Grade: 1.10 g/t
Recovery Rate: 90%
GEO’s Produced: 111,402.61 oz
GEO’s for Sale: 111,402.61 oz
Revenue ($2k/oz): $222,805,223.87
All-in Sustaining Cost: $1,379.05/oz sold
Production Cost: $153,630,013.20
Earnings: $69,175,210.67 or .0641/share
Florida Canyon Gold Mine:
Ore Mined: 9,800 '000t ($42,630,000.00)
Waste Mined: 10,900 '000t ($22,345,000.00)
Total Mined: 20,700 '000t
Grade Mined: 0.27 g/t
Contained oz Mined: 85,071.09 oz
Crushed Tonnes: 5,600 '000t ($12,600,000.00)
Processed Grade: 0.27 g/t
Recovery Rate: 59%
Recoverable Placed: 48,143.29 oz
GEO’s Produced: 63,000 oz
GEO’s for Sale: 63,000 oz
Revenue ($2k/oz): $126,000,000.00
All-in Sustaining Cost: $1,746.11/oz sold
Production Cost: $110,005,000.00
Earnings: $15,995,000.00 or .0148/share
La Colorada Mine:
GEO’s Produced: 5,000 oz
GEO’s for Sale: 5,000 oz
Revenue ($2k/oz): $10,000,000.00
All-in Sustaining Cost: $1,600.00/oz sold
Production Cost: $8,000,000.00
Earnings: $2,000,000.00 or .0019/share
San Agustin Mine:
Ore Mined: 6,800 '000t ($27,880,000.00)
Waste Mined: 5,800 '000t ($12,760,000.00)
Total Mined: 12,600 '000t
Grade Mined: 0.45 g/t
Contained oz Mined: 98,381.53 oz
Crushed Tonnes: 6,800 '000t ($7,820,000.00)
Total Placed/Milled: 6,800 '000t ($30,940,000.00)
Processed Grade: 0.45 g/t
Recovery Rate: 37%
Recoverable Placed: 36,401.17 oz
GEO’s Produced: 36,401.17 oz
GEO’s for Sale: 36,401.17 oz
Revenue ($2k/oz): $72,802,330.29
All-in Sustaining Cost: $2,181.25/oz sold
Production Cost: $79,400,000.00
Earnings: -$6,597,669.71 or -.0061/share
El Castillo Mine:
GEO’s Produced: 2,000 oz
GEO’s for Sale: 2,000 oz
Revenue ($2k/oz): $4,000,000.00
All-in Sustaining Cost: $1,100.00/oz sold
Production Cost: $2,200,000.00
Earnings: $1,800,000.00 or .0017/share
Consolidated Guidance:
GEO’s for Sale: 217,803.78 oz
Revenue ($2k/oz): $435,607,554.16
All-in Sustaining Cost: $1,601.28/oz sold
Production Cost: $353,235,013.20
Earnings: $82,372,540.96 or .0763/share
In summary, the calculations for 2024 indicate annual sales of 217,803.78 Gold Equivalent Ounces (GEOs) available. These sales generated a revenue of $435,607,554.16. The All-in Sustaining Cost (AISC), representing the cost to produce each ounce of gold sold, was $1,601.28 per ounce. The total cost of production for the year amounted to $353,235,013.20. After deducting these costs, the company reported earnings of $82,372,540.96, equivalent to .0763 per share. These production figures are not unfavorable. Over the next year, the high Capital Expenditure (CapEx) cost is projected to significantly reduce. Concurrently, the All-In Sustaining Costs (AISC), a common metric for unit costs in gold production, are forecasted to decline over the following 12 to 18 months. These reductions are expected to drive the company towards profitability. Optimizations are currently in progress and are expected to be completed in 2024.
As of now, looking ahead to 2024, the company is progressing with a total of $83.8 million in cash and cash equivalents. By the end of the year, we could witness a substantial gross profit. The company’s potential for significant growth, often referred to as “blue sky” potential, is already becoming apparent.
Following the completion of the drilling program, the company’s recent announcements indicate that it will be able to convert 500,000 to 1 million resource ounces into reserve ounces. CEO Richard Young has reiterated on two occasions that the company anticipates converting 1 million to 2 million resource ounces into reserve ounces. This statement has also been confirmed by the investor relations via email.
With all being said, the company anticipates an increase in the production rate of the Magino Gold mine to a range of 200,000 to 250,000 Gold Equivalent Ounces (GEOs). Following the drilling of the 5 million ounce oxide deposit at Florida Canyon and the construction of the third heap leach pad, which is expected to enhance flow rates, the annual production rates could potentially exceed 70,000. Additionally, the All-in Sustaining Cost (AISC) is expected to decrease significantly.
Here’s an example of just the two mines operating following expansions and optimization.
Magino Gold Mine (wtih 250,000 oz) and Florida Canyon Gold Mine (with 70,000 oz):
GEO’s for Sale: 320,000 oz
Revenue ($2k/oz): $640,000,000
All-in Sustaining Cost: $1,601.28/oz sold
Production Cost: $512,409,600
Earnings: $127,590,400 or .118/share
Here's the 28 top gold mining companies by P/E ratio:
The average P/E ratio for these companies is 30.21 and the average price is $15.57.
Here are two instances of applying the Price-to-Earnings (P/E) multiplier to the 2024 Consolidated Guidance, and to the Magino Gold Mine (250,000 oz) and Florida Canyon Gold Mine (70,000 oz):
Consolidated Guidance:
$2,488,474,462.40 or $2.30 per share.
Magino Gold Mine (wtih 250,000 oz) and Florida Canyon Gold Mine (with 70,000 oz):
$3,854,505,984 or $3.56 per share
Following the reduction in interest rates due to rate cuts, the cost of equity is expected to decline. Consequently, the discount rate should fall as well.
The calculations I performed for Consolidated Guidance and Magino Gold Mine (wtih 250,000 oz) and Florida Canyon Gold Mine (with 70,000 oz) suggest that if the company can reduce their All-in Sustaining Cost (AISC) to $1,350 per ounce and increase the reserves to a range of 4 million to 6 million AU ounces, the pre-tax Net Present Value (NPV) with a 5% discount rate on 19 years of 207,803.78 AU ounce annual production amounts to $496.5 million with an Internal Rate of Return (IRR) of 10.26%. The pre-tax NPV with a 5% discount rate on 19 years of 320,000 AU ounce annual production amounts to $1.335 billion with an IRR of 17.91%. An IRR between 10.26% and 17.91% is generally considered good.
Currently, the gold price is still over $2k. I anticipate that the gold price may reach $2.3k or higher when the Federal Reserve begins rate cuts. If you start analyzing their production data with a gold price of $2.3k and an AISC of $1,350 per ounce, we see an NPV with a 5% discount between $1.2 billion and $2.4 billion, and an IRR between 16.85% and 27.08%. An IRR between 16.85% and 27.08% is generally considered good.
Regarding the Capital Expenditure (CapEx), refinancing, and sale of Mexican assets, the Q3’23 report did hint at a high CapEx for this year, which was not surprising. The company announced in 2023 that the mines would undergo optimization in 2024, a process that will inevitably incur expenses. The refinancing will encompass additional funds that will be designated for the expansion and the 2024 CapEx, which might surpass net profits. The refinancing with extra funds will alleviate the strain on the balance sheet and steer the company towards a profitable trajectory. Following the expansion and optimization, the mines will operate at their maximum potential, and investors may regret not buying when the prices were low. The disposal of the Mexican assets will provide the company with an advantage in the future as it starts to reduce its debt.
Today, Argonaut Gold’s Enterprise Value (EV) stands at $591.43 million. The ratio of Enterprise Value (EV/R) to reserves is $179.71 per ounce. Its Book Value (BV) is significantly higher, reaching $866.258 million. The Book Value (BVPS) per share is currently .796.
Please note that all figures are presented in USD unless stated otherwise and calculations don’t include taxes.
