VANCOUVER — It’s all about boosting near-term liquidity for silver producer Aurcana (TSXV: AUN; US-OTC: AUNFF) as it grapples with a high debt load and falling metal prices. On Dec. 1 the company released its third-quarter results at its La Negra mine in Queretaro state, Mexico, which were highlighted by falling costs and a new production record.
Quarterly silver equivalent output jumped 32% year-on-year to 997,530 oz. during the period, which compares to 754,788 oz. during third-quarter 2013. The results also represent a 27% increase over the 786,505 equivalent oz. produced in the second quarter. The company has focused on four “primary initiatives” at La Negra over the past three months, including: safety, cost reduction, management reviews, and productivity and efficiency improvements.
As a result, Aurcana saw revenues increase 23% quarter-on-quarter to $11.4 million. Falling commodity markets impacted the company’s bottom line, however, with operational earnings down 77% year-on-year to $600,000, based on a 17% drop in realized metal prices. The good news is that Aurcana decreased its quarterly comprehensive loss by 86% when compared to the same period in 2013.
One of the main victories at La Negra is falling operating costs, which dropped 17% to US$7.79 during the quarter compared to US$9.40 per oz. in third-quarter 2013. Aurcana implemented a number of cost-saving initiatives, including workforce reduction and controls on spending. The programs resulted in annualized cost savings of US$4 million, with another US$2 million in savings anticipated over the next year.
Aurcana has increased the productivity and efficiency of its drilling and blasting, along with improving planning, engineering and geologic controls at La Negra. The company notes that it has outlined and developed new mineralization zones, and 35% of its production has come from outside of the mine’s current resource envelope.
The work resulted in a new resource estimate on Dec. 3, which Aurcana stated “highlights unexplored gaps between existing mantos and obvious mineralized trends.” Silver and base metal mineralization on the property is closely associated with skarn deposits in a number of blanket or “manto” chimney-like veins, and breccia deposits.
La Negra hosts 4.7 million measured and indicated tonnes averaging 76 grams silver per tonne, 0.5% copper, 0.3% lead and 1.5% zinc.
In-situ metal quantities total 11.6 million oz. silver, 54.2 million lb. copper, 35 million lb. lead, and 160.4 million lb. zinc. The company has also identified five exploration targets for further drilling, all within 200 metres of underground workings.
President and CEO Kevin Drover called the new resource a “critical tool” that Aurcana’s management needed to plan its mine sequencing. He also said the company is on pace to meet its 2014 production guidance of between 3.5 million and 4 million oz. silver equivalent.
Despite the operational improvements, Aurcana’s big issue still relates to its balance sheet. The company reported a US$34-million net debt, US$10-million working capital deficit and US$1.7-million cash balance at the end of the quarter.
Aurcana said it is working with Orion Mine Finance to improve its short-term liquidity. The private-equity group agreed to defer principal and interest payments due during the quarter.
BMO Capital Markets analyst Andrew Kaip — who has a stock “underperform” rating on Aurcana and a 25¢ price target — wrote on Dec. 1 that the company “was able to maintain its lean cash position through the third-quarter, but the company’s near-term liquidity position and securing financing remain ongoing concerns. Subsequent to quarter-end Aurcana was able to sell surplus equipment for proceeds of US$6.1 million. Still, the company is actively source financing to support the working capital deficit.”
Aurcana was up 17.5% in the two days of trading after its quarterly report en route to a 37¢ close at press time. The company has traded within a 52-week range of 20¢ and $1.55, and has 85 million shares outstanding for a $31-million market capitalization.