Argonaut Gold (AR-T) has a lot going for it in Mexico, where it operates the El Castillo and the new La Colorada gold mines and is pushing ahead its San Antonio project.
Both mines had a strong June quarter, which helped the Toronto-based junior achieve record production, revenue and earnings.
Total gold production came in at 24,123 oz., with El Castillo contributing 19,533 oz., and La Colorada, which came online in mid-April, providing 4,590 oz. gold and 25,796 oz. silver in its first quarter of commercial production.
Sales increased by 62% from a year ago to 23,247 oz. gold, generating US$37.5 million in revenue or 74% more than the second period of 2011.
Argonaut reported a profit of US$11.3 million or 12¢ a share compared to US$5.2 million or 6¢ a share a year earlier. The earnings per share (EPS) beat the consensus of 11¢ a share.
BMO Capital Markets’ analyst Andrew Kaip in a note said the higher EPS came largely from lower-than-expected operating costs and higher grades at El Castillo.
Co-product cash costs totaled US$620 per oz., 17% below BMO Research’s estimate, he says.
Canaccord Genuity’s analyst Rahul Paul writes in a note that the lower cash costs were driven by La Colorada’s “very strong and uncommon start-up performance.”
The mine reported cash costs of US$587 per oz. below the annual guided range of US$625 to US$650 per oz. and even better than the estimated life of mine cash cost of US$620 per oz., he says.
Going through El Castillo’s operational stats, the company’s president and CEO Pete Dougherty said on a conference call that the mine recorded a higher grade of 0.41 gram gold per tonne, representing more than a 20% year-over-year increase. This contributed to more gold ounces being loaded and recovered from the heap-leach pad.
However, on an operating cost side, the mine saw costs increase to US$5.20 per tonne.
“Our crushing costs were significantly higher as this was due to the 35% increase in overall tonnage crushed and loaded to the pad. This includes a cost of nearly a $1 a tonne to move the material from the crusher and load it on the pad,” explains Dougherty.
To help cut down costs, the company has recently installed a conveying and stacking system on the mine’s east side pad. It says this could lead to potential cost reductions of 70¢ per tonne, enhanced reagent efficiencies and improved stacking of ore.
While operating costs per tonne were higher, the gold producer was able to keep down El Castillo’s cash costs which came in at US$632 per oz., roughly 2% higher than a year ago.
To increase the mine’s capacity, it has recently completed the west side leach pad 7a, which could stack roughly 6.7 million tonnes. The east pad has the stacking capacity of 25 million tonnes.
At La Colorado, the Mexico-focused producer has recently commissioned a new gold recovery circuit, which is now processing loaded carbon from both mines.
According to the company’s management this could potential lower the sales cycle from six weeks to one week, writes Paul in the note.
However, during the third quarter the miner estimates lower gold production of 3,000 oz. from La Colorado as it relocates the crusher near the new pads, currently under construction.
The company expects to receive full mining permits in the third quarter, after which it will start full production in early 2013.
While things look to be on track at La Colorado and at El Castillo, Argonaut is working through a permitting hurdle at the San Antonia gold project in Baja California Sur.
The company reported its environmental permit has been denied by SEMARNAT because part of the project falls on an area zoned for tourism and agricultural use. But the company says it’s working with local communities and government agencies to have that land rezoned for industrial use.
Paul says he doesn’t see why the area would not be re-zoned, but notes this has slightly increased the project’s risks.
Argonaut anticipates getting San Antonia up and running by mid-2014, while Paul forecasts the project coming online by mid-2015.
Nonetheless, the junior is continuing to advance San Antonio and plans on publishing a preliminary economic assessment later this year.
For 2012, Argonaut is guiding production of 88,000-97,000 oz. gold and cash costs of US$625 to US$650 per oz. Expected output during the year from El Castillo is 75,000 to 80,000 oz. and from La Colorado is 13,000 to 17,000 oz.
Argonaut ended the quarter with US$21.4 million in cash.
Its shares dropped 3.7% on August 15, the day the financials were released, to close at $7.79.
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