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Allied Nevada's gold production fell slightly, offset by rising silver production.
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The company's Hycroft feasibility study was very similar to its PFS.
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I had largely anticipated this last November.
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The thesis remains the same - the company needs higher gold prices in order to be a viable investment.
Allied Nevada Gold (NYSEMKT:ANV) came out with a pair of news releases on Wednesday. First, the company released its Q3 Production Data. The company's gold production fell slightly from 52,000 oz. to just under 50,000 oz. However this was offset by a sharp rise in silver production, which increased from 184,000 oz. to 535,000 oz. This is mixed, although its real significance will come out when we find out the company's production costs, which will determine its profitability or lack thereof. Investors should note that the company has substantial debt obligations due along with interest expenses that are draining the company's cash position, and with metal prices low the company could very well be on the verge of needing an emergency capital injection.
The company also released the results for its Hycroft feasibility study. The company plans on significantly increasing production at Hycroft to nearly 500,000 oz. of gold per year from current levels. Unfortunately this will cost more than $1.3 billion, which the company doesn't have.
As I feared in my article last November Allied Nevada is draining capital quickly as its debt obligations and interest expenses are eating up operating cash-flow from its Hycroft Mine in Nevada. Its high debt load means that its effective cost of production exceeds its operating cost by several hundred dollars per ounce, and as a result the company has been draining cash even as production costs rise.
I am actually surprised that the company has not needed a capital injection considering the weak precious metals market and considering its near-term liabilities. This, coupled with rising production cost predictions have made this a highly speculative stock to own. But if you believe that the price of gold will rise in the near term Allied Nevada shares are incredibly well positioned to skyrocket, and it is reasonable to assume high double-digit or even triple-digit returns on the back of a modest rise in the gold price. On the other hand a flat to lower gold price could mean that the company will need to raise cash, which means issuing stock at the current, depressed share price. So this is a high risk/high reward stock with incredible leverage to the gold price.