After a rough second quarter slashed its stock price, Allied Nevada Gold (TSX: ANV; NYSE-MKT: ANV) could make the year’s biggest comeback.
The company proved it was back on top of operations at its flagship Hycroft mine in Nevada by delivering a 33% quarter-over-quarter increase in production. Indeed, the latest quarter brought both record production and record sales from the gold mine near Winnemucca, Nev.
Allied’s stock had seen major selling for most of the year, but the trend reversed on word of a record quarter and gained as much as 33% after the news.
In the third quarter Hycroft produced 52,198 oz. gold and 184,070 oz. silver. Sales for the quarter also set records at 52,713 oz. gold and 184,082 oz. silver.
The improvements have Allied confident that it can reach its full-year production and sales guidance of 175,000 to 200,000 oz. gold and 900,000 to 1.1 million oz. silver. This guidance, however, dipped last quarter.
The company’s recent success was based on a few factors.
First, the heap leach at the mine saw better water availability and increased fluid flows, which helped it meet processing requirements. Allied says total solution flows to the leach pads average 22,000 gallons per minute — a 36% increase from mid-year.
A 21,500-gallon-per-minute Merrill-Crowe plant is also undergoing commissioning. Allied says the plant started off processing 7,000 gallons per minute, but would see staged weekly increases until fully commissioned at 21,500 gallons per minute. It expects to reach this goal soon.
The plant is expected to boost silver production. Where the old plant produced 3.5 oz. silver for every gold ounce, the new plant would double that to 6 oz. silver for every gold ounce.
The improved numbers mean that once the company commissions the new plant, it will have little use for the old Merrill-Crowe plant and carbon columns, and can shut them down.
Allied also expects to commission a gyratory crusher by year-end, which could lift gold recoveries to 63% for the crushed portion, versus the 51% it averages.
Scotiabank analyst Trevor Turnbull says that after Allied Nevada wraps up its capital expenditures, it could end the year with $65 million in cash.
“Going forward with spot gold prices, we forecast a cash low point of $55 million next year,” Turnbull writes in a research note. “However, there is a cushion from surplus equipment, such as a new $25-million electric shovel.”
Turnbull upgraded Allied Nevada to “sector perform” based on the quarter’s improvements, and in anticipation of production increases.
While the recent surge in the share price came as relief to long-time investors, the stock still has a ways to go if it hopes to recover from recent losses.
Allied Nevada shares began the year trading in the $30 range, but a steady decline since then has pushed them below $4. The good news from Hycroft, however, lifted the company’s stock briefly above $5 before settling back down to $4.79 at midday on Oct. 8.
The most recent leg down in the company’s share price came back in August after it announced a construction delay and uninspiring earnings that saw profits fall by nearly US$2 million.
Back in May Allied disappointed by announcing that it was considering a more modest facility at Hycroft. The plant was set to handle 118,000 tonnes per day by 2015, but the company said it would scale that back to 75,000 tons (68,000 tonnes) per day.
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