Cost over-runs incurred while constructing the company's billion dollar flagship Magino mine. Investors got scarred and started to sell this company off like it was worthless. Construction is 90% done, project is fully funded, and upcoming gold pour at their billion dollar flagship gold mine is scheduled for 2nd half of May 2023.
Argonaut Gold 2023 intrinsic value (Quantitative data acquired from; '2023 Q1 Financial reports and filings', ' Management's Discussion & Analysis', '2023 outlook'):
Average AISC per ounce sold: 1,580
Average realized sale price per ounce sold: 1900
Profit margin per ounce sold: 320
Estimated GEO production: 199,000 GEOs
Estimated EPS: 0.076
Industry average earnings per share ratio: 17.8*
ARNGF intrinsic value: US$1.35
AR intrinsic value: CAD$1.81
The company states production, mining rate average g/t, earnings, and revenue will increase substantially over the next couple years. The company also states, inversely AISC will fall as construction at Magino ramps up, and as the company commences commercial production at Magino. Commercial production is expected to commence Q3 of 2023. As of March 2023, the company's total assets are US$1.29B and 'cash and cash equivalents' balance of US$58.4M.
Future opportunities to expand operations at their billion dollar flag ship Magino mine to include underground mining with high grade gold. Alamos Gold's Island gold mine is located directly across the street from Magino. Island gold is an underground gold mine with a mining rate average of 8.9 g/t. When considering Argonaut Gold's drill results which indicate high grade gold currently exists on the property similar to Island Gold's average mining rate of 8.9 g/t. The probability that Island Gold's gold vein runs directly across the street into Magino is very high. Furthermore future drill results could prove this to be true. Alamos Gold's 2022 GEOs production was roughly 450k and the company's value is approximately CA$7B. Argonaut Gold's current value is infinitesimal, a whopping CA$500M.
Argonaut Gold announced a Canadian flow through equity raise in the amount of CA$17.5M to fund a portion of their planned reserve development and exploration program at Magino. The majority of the spend is to convert resources to reserves within the open pit with an expectation that about half of their resource base outside of reserves will be converted to reserves over time, which would potentially result in an open pit reserve of 4M GEOs. An addition of the pebble crusher could increase throughput by as much as 30% over the current nameplate capacity of the process plant of 10,000 tpd to 13,000 tpd. Magino mill is built to process a total of 35,000 tpd. The company also states, "To date, infill drill results show higher tonnage and grade, which could improve the average grade processed over the first five years of operations from 1.3 grams per tonne up to 1.43 grams per tonne".
The Magino mine in full production stage, based on these statements, we can presume Magino could potentially produce approximately 225k GEOs. Argonaut Gold's three other mines Florida Canyon, La Colarada, and San Agustin are expected to produce approximately 200k GEOs in 2023. Considering Argonaut Gold's three other mines meet 2023 expectations, and repeat said expectations in 2024. Argonaut Gold could theoretically produce approximately 425k GEOs in 2024.
Argonaut Gold's CEO Richard Young, former CEO of Teranga Gold, was appointed as CEO of Argonaut Gold 08-December-2022. Richard Young helped build Teranga Gold into a multi billion dollar mining company. Endeavour Mining acquired Teranga Gold for a $2bn all-share deal in 2020. Subsequently to Richard Young being appointed as CEO of Argonaut Gold, Richard purchased 2,797,500 shares of Argonaut Gold, and purchased an additional 260,000 shares of Argonaut Gold for a family member. The influx of insider buying since 05-July-2022 depicts very bullish sentiment amongst insiders. Insiders purchasing common shares using their own personal capital is very intriguing.
BRICS & de-dollarization:
BRICS members have been creating their own digital gold backed currencies to settle international trade deals in order to 'ditch the dollar'. China settled their first lng trade in Yuan March 2023. Petro dollar is slowly being replaced by the petro yuan. Brazil and Russia are now accepting trade settlements and investments in yuan.
Yield curve inversion & housing market:
The 10 and 2-year Treasury bond yield curve inversion insinuates a US recession is inevitable. 30 year fixed mortgage rates are currently floating at 2008 highs. The last time US 30 year fixed mortgage rates were this high, the US housing market crashed. Credit default swaps are currently at all time highs. CFTC shows that leveraged funds have large net short positions across several Treasury futures contracts, including a record short in the 10-year note.
US banking crisis & rate hikes.
Banking crisis contagion is still real. Pacwest, Western Alliance, First Horizon, Homestreet, and Bank of America are still in a catastrophic sell off. Powell raised interest rates by a whopping 25bps. Subsequently, Pacwest tanked -90% and Western Alliance was down -50%. High interest rates are most definitely accentuating the banking crisis, and we could potentially see the banking crisis exacerbate in the very near future.
US compromised safe haven status & debt ceiling dilemma:
The illegal seizure of Russian US assets conducted by the US government, compromised US as a safe haven asset. This discourages other countries from relying on the US as a safe haven asset. The debt ceiling dilemma further adds to the risk of investing in US Treasury securities. The catastrophic ripple effect from US defaulting and not being able to pay capital owed to bondholders would be irreversible. Unemployment would rise +8%. The idea of USD being 'safe Haven' and 'reserve currency' would seize to exist.
US potential conflicts 2023:
Russia’s major invasion of Ukraine in February of 2022, led to a massive increase in US support for Ukraine. US troops have been deployed in Ukraine. Biden had committed nearly US$80B in aid to Ukraine.
North Korea missile tests, led to US president Biden threatening nuclear war against North Korea.
China and Taiwan conflict, led to US president Biden to threaten to defend Taiwan against Chinese invasion . This is what it would cost the US, if China was to cut them off. By 2025, $190 billion a year in in U.S. output by expanding 25% tariffs to all trade with China. In the coming decade, full implementation of such tariffs would cause the U.S. to fall $1 trillion short of potential growth. Up to $500 billion in one-time GDP losses if the U.S. sells half of its direct investment in China. American investors would also lose $25 billion a year in capital gains. $15 billion to $30 billion a year in exported services trade if Chinese tourism and education spending falls to half of what it was prior to the coronavirus pandemic.
US depleted oil reserves:
After US withdrew a historic 180M barrels of oil, US oil reserves are at 4-decade-low. Considering US is on the cusp of starting World War 3, US will need to refill reserves in case of emergency. Oil price is currently around US$70 a barrel. An additional Saudi surprise oil production cut or US engages in warfare, could potentially send oil price to the moon. Saudi's have formally applied to join BRICS. US is currently at risk of engaging in warfare with more then one BRICS member. Saudi's are in complete control of oil price. In order for US to fill reserves, US will require oil price below US$80 a barrel. However, if the Saudi's continue to cut oil production, US will be forced to purchase oil at whatever price, regardless of Biden's budget.
US has one of the highest gdp/debt ratios and is currently +120%. US total debt is approximately US$31.46 trillion. 2022 US gdp reported two quarters of negative growth, and 2023 Q1 gdp growth decreased to 1.1%. Technically, when considering 2022 gdp data, during 2022 US experienced a mild recession. Q1 of 2023 US economy has been in a downward spiral of failure like never seen before in US history. The feds insinuate US will experience a 'mild recession' in 2023. I would insist, and when considering the macroeconomic data and geopolitics, 2023 recession will be one of the worst in US history.
Compromised safe haven status, potential conflicts, depleted oil reserves, BRICS de-dollarization tactics, risk of recession, high rates, risk of default, yield curve inversion, high gdp/debt ratio, and a decline in gdp growth is super bearish for the dollar. In turn gold price will steadily increase, and gold miners profit margin will also steadily increase. This could potentially result in a substantial increase in earnings and industry average p/e ratio for gold miners. Gold price has unlimited potential. Considering geopolitics and US macroeconomic data, I wouldn't be surprised to see gold price over $2,100 by end 2023.