PRODUCTION NUMBERS A CONCERN Argonaut Gold (OTCPK:ARNGF) recently announced its fourth quarter production results and results seem very good as the company produced record fourth quarter production of 44,312 gold-equivalent ounces. Additionally, the company's outlook for 2015 of 135,000-145,000 gold-equivalent ounces is a slight increase on this year's 136,706 gold-equivalent production.
In our previous analysis on Argonaut Gold, we noted that the company should see much higher fourth quarter production as record Mexican rainfall in the third quarter had led to decreased recovery of gold. These results confirm this expectation and are definitely a positive in terms of production totals.
But we also note that today's announcement also showed that grades were down sequentially from the third quarter at both El Castillo (.33 g/t vs. .34 g/t - a minor drop) and La Colorada (.55 g/t vs. .70 g/t - a much bigger drop) - which is not a positive. We'd emphasize though that mine plans can have variations on a quarterly basis and so we think investors should pay close attention to management's discussion of their outlook when fourth quarter reports are released.
Additionally, much of Argonaut's valuation depends on its large Magino deposit and its potentially high-grade San Antonio deposit, so El Castillo and La Colorada results are only part of the story here. But if grades deteriorate further in 2015, which might be a major downside risk for the company as those profits are what is expected to fuel development and permitting at Magino and San Antonio.