Argonaut Gold Announces Second Quarter Financial and Operating Results

Ramp Up Underway at Magino Mine - On Track for Commercial Production in Q3

TORONTO, Aug. 11, 2023 /CNW/ - Argonaut Gold Inc. (TSX: AR) (the "Company", "Argonaut Gold" or "Argonaut") today reported financial and operating results for the three and six months ended June 30, 2023 (the "second quarter" or "Q2"), as well as a progress update for the Magino Mine. All dollar amounts are expressed in United States dollars, unless otherwise specified (CA$ refers to Canadian dollars).

"Argonaut delivered solid financial and operational results for the quarter, generating strong cash flows to help fund the completion of our newest mine, Magino. During the quarter, the Magino mill began ramping up, putting the mine on track for commercial production in the third quarter. We believe Magino could be one of the largest and lowest cost gold mines in Canada. To that end, during the third quarter, while commissioning the Magino mill, we are commencing a reserve development drilling program intended to increase reserves in combination with engineering studies to increase mill throughput. At the Florida Canyon Mine in Nevada, we are commencing a drill program during the third quarter as part of a proof-of-concept program on the sulphide material. We believe organic growth through mineral resource expansion will deliver significant value within the Company's asset base and lays the long-term foundation to grow our current production profile as we seek to become a low-cost, mid-tier North American gold producer," stated Richard Young, President and Chief Executive Officer of Argonaut Gold.

• Revenues of $83.1 million was 25% lower than $111.4 million from the second quarter of 2022, due to lower planned production from the Company's three Mexican mines, partially offset by higher production from Florida Canyon and includes $0.1 million of initial ounces sold from the Magino mine.
• Gross profit of $15.5 million was $4.3 million lower than $19.8 million from the second quarter of 2022, due to lower revenues from planned lower production.
• Generated cash flow from operating activities before changes in working capital and other items totalling $17.4 million, a reduction of 25% from Q2 2022 due to lower gross profit.
• Net income of $21.2 million, or $0.03 per basic and diluted share, compared to net income of $18.4 million, or $0.06 per share for Q2 2022, a 15% increase in net income.
• Adjusted net income¹ of $5.7 million, or $0.01 per basic share, compared to adjusted net income¹ of $7.3 million, or $0.02 per share from Q2 2022, a decrease of $1.6 million.
• Cash and cash equivalents of $71.8 million and net debt¹ of $151.6 million at June 30, 2023.
• Undrawn debt capacity of $20.0 million at quarter-end.
• On June 29, 2023, the Company obtained a waiver on certain financial covenants on its $250 million financing package (collectively referred to as the "Loan Facilities") for the ongoing development and construction of the Magino mine.
• Consolidated production of 43,492 GEOs, including the initial 3,295 ounces of gold from the Magino mine, was 27% lower compared to 59,190 GEOs from the second quarter of 2022, due to lower ore tonnes mined and processed at the Company's three Mexican operations.
• Cost of sales per ounce¹ of $1,590, cash cost¹ per ounce of $1,304 and AISC¹ per ounce of $1,594 were similar to the prior year period and largely in-line with 2023 full-year guidance. With the expectation of achieving commercial production at Magino in the third quarter of 2023, cost of sales per ounce¹, cash cost¹ per ounce, and AISC¹ per ounce are expected to be in-line with full year 2023 guidance.

"Production and per ounce costs are largely on plan for the first half of the year, placing the Company on track to meet its full year production and cost guidance targets set at the beginning of the year. We continue to ramp up the mill at Magino to steady-state and are expecting to achieve commercial production in the third quarter of this year. The plant has been running at or above nameplate throughput capacity when operating," stated Marc Leduc, Chief Operating Officer of Argonaut Gold.

Magino Mine

• During the second quarter, commissioning activities at the Magino mine were well underway, with the introduction of ore into the crushing circuit mid-May and the grinding circuit approximately one week later.
• First gold pour was achieved mid-June.
• During the month of June, the Magino mine produced an initial 3,295 ounces and sold 72 ounces. Accordingly, the Company recognized $0.1 million of revenues and $0.1 million of cost of sales in the period related to these initial pre-commercial production gold ounces.
• As at June 30, 2023, the Company had incurred approximately $730 million (CA$947 million) of the $755 million (CA$980 million) estimated cost to completion ("EAC").
• Initial results during commissioning indicate that throughput targets in the crushing and grinding circuits should be easily achieved, and the team was focused on achieving design parameters by working through instrumentation, electrical, and communications issues that are common in the startup phase of a process plant of this size.
• Permits have been received to operate the process plant and tailings management facilities.
• Workforce buildup of the permanent operating team is nearing completion but sourcing the remaining labour remains a challenge in the current economic environment, however, vacant roles are being temporarily filled by contract personnel.

Florida Canyon Mine

• Exploration and development work focused on drilling within the oxide resource, tested a high-grade target in the West Sulfide Zone, and completed regional generative exploration work.
• In the West Sulfide Zone, the Company completed six diamond drill holes, for a total of 1,258 metres in three drill fences; these holes were part of the Company's proof-of-concept evaluation of the sulfide resources.

Mexico

• On August 4, 2023, the Company signed an agreement to acquire the necessary land to complete mining of the current reserve base at the San Agustin Mine. Subject to receipt of the necessary permit, expected later this year, mining is expected to continue into 2025.
• We continue to work towards optimizing the value of our Mexican assets and we are evaluating the full spectrum of alternatives for the portfolio.

Production and per ounce costs are largely on plan for the first half of the year, placing the Company on track to meet its full year production and cost guidance targets set at the beginning of the year. The Magino mine achieved first gold pour in mid-June, 2023, approximately 30 days behind schedule. The Magino mine is currently ramping up to commercial production, which is expected in the third quarter. Production is expected to increase and consolidated cost of sales per ounce¹, cash cost per ounce¹, and AISC¹ per ounce are expected to decline once the Magino mine reaches commercial production.

The only significant change in guidance relates to exploration costs which are expected to be approximately $10 million higher than planned due to exploration and reserve development programs underway at the Magino and Florida Canyon mines.

Consolidated 2023 production and cost guidance remains unchanged at 200,000 to 230,000 GEOs and an all-in sustaining cost of $1,625 – $1,725 per ounce.

This press release should be read in conjunction with the Company's unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2023 and associated Management's Discussion and Analysis ("MD&A") for the same period, which are available on the Company's website at www.argonautgold.com, in the "Investors" section under "Financial Filings", and under the Company's issuer profile on SEDAR+ at www.sedarplus.ca.

Management will host a live conference call and webcast to discuss second quarter highlights with a question-and-answer session as follows:

The conference call replay will be available from 12:00 p.m. ET on August 18, 2023 until 11:59 p.m. ET on August, 2023.

The Company provides certain non-IFRS measures as supplementary information that management believes may be useful to investors to explain the Company's financial results.

"Cost of sales per ounce sold" and "Cash cost per ounce sold" are common financial performance measures in the gold mining industry but have no standard meaning under IFRS. The Company reports cost of sales and cash cost per ounce on a sales basis. We believe that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate the Company's performance and ability to generate cash flow. Accordingly, it is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures, along with sales, are considered to be key indicators of a Company's ability to generate operating profits and cash flow from its mining operations.

Cash cost figures are calculated in accordance with a standard developed by The Gold Institute, which was a worldwide association of suppliers of gold and gold products and included leading North American gold producers. The Gold Institute ceased operations in 2002, but the standard is considered the accepted standard of reporting cash cost of production in North America. Adoption of the standard is voluntary and the cost measures presented may not be comparable to other similarly titled measures of other companies.

The World Gold Council definition of AISC seeks to extend the definition of cash cost by adding corporate, and site general and administrative costs, reclamation and remediation costs (including accretion and amortization), exploration and study costs (capital and expensed), capitalized stripping costs and sustaining capital expenditures and represents the total costs of producing gold from current operations. AISC excludes income tax payments, interest costs, costs related to business acquisitions and items needed to normalize profits. Consequently, this measure is not representative of all of the Company's cash expenditures. In addition, the calculation of AISC does not include depreciation expense as it does not reflect the impact of expenditures incurred in prior periods. Therefore, it is not indicative of the Company's overall profitability.

"Adjusted net income" and "adjusted net income per basic share" exclude a number of temporary or one-time items, which management believes not to be reflective of the underlying operations of the Company, including the impacts of: unrealized losses (gains) on derivatives, non-operating income, foreign exchange losses (gains), impacts of foreign exchange on deferred income taxes, inventory impairments (reversals), mineral properties, plant and equipment impairments (reversals), and other unusual or non-recurring items. Adjusted net (loss) income per basic share is calculated using the weighted average number of shares outstanding under the basic calculation of earnings per share as determined under IFRS.

"Net debt" is calculated as the sum of the cash and cash equivalents balance net of debt as at the statement of financial position date. "Net debt" calculation includes unamortized transaction costs, but excludes Convertible Debentures and equipment loans which are currently included in total debt, in order to show the nominal undiscounted debt. This measure has no standard meaning under IFRS and other companies may calculate this measure differently.

1.     The following tables provide reconciliations of production costs per the financial statements to cost of sales per ounce, cash cost per ounce, and AISC per ounce for each mine:

2.     Adjusted net income and adjusted net income per basic share exclude a number of temporary or one-time items detailed in the following table:

3.     A reconciliation of net debt is detailed in the following table:

Certain information contained or incorporated by reference in this press release, including any information as to our strategy, projects or future financial or operating performance, constitutes "forward-looking statements". Forward-looking statements are frequently characterized by words such as "plan," "expect," "project," "intend," "believe," "anticipate", "estimate" and other similar words, or statements that certain events or conditions "may", "should" or "will" occur.  This press release contains forward-looking statements and forward-looking information including, but not limited to: Magino achieving commercial production in Q3 2023, Magino becoming one of the largest and lowest cost Canadian gold mines, the likelihood of success of the Magino reserve development drilling program to increase reserves, the likelihood of the engineering studies to increase mill throughput, organic growth through mineral resource expansion delivering significant value, the Company becoming a low-cost, mid-tier North American gold producer, the Company achieving its full year 2023 production and cost guidance, the Magino mill achieving crushing and grinding circuit throughput targets, completion of mining the current reserve base at San Agustin, optimizing the value of the Mexican assets, Magino production increasing, Magino costs including consolidated cost of sales per ounce, cash cost per ounce, and all-in sustaining cost per ounce decreasing, and the exploration cost being greater than original guidance.

Forward-looking statements are based on a number of assumptions, opinions and estimates, including estimates and assumptions in regards to the factors listed below that, while considered reasonable by the Company as at the date of this press release based on management's experience and assessment of current conditions and anticipated developments, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Many of these assumptions are based on factors and events that are not within the control of Argonaut and there is no assurance they will prove to be correct. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements and undue reliance should not be placed on such statements and information. Such factors include, but are not limited to: risks associated with construction and start up of new mines, various operational risks associated mines at difference stages of their lifecycles; the impact of inflation on costs of exploration, development and production; the impact of COVID-19 and other human health concerns and the effectiveness of government responses to COVID-19 and other human health concerns; risks and uncertainties associated with operations in an emerging market; risk associated with safety and security of people and assets in emerging markets; commodity price volatility; foreign exchange rate fluctuations; the ability of the Company to achieve the conditions precedent for draws on the loan facilities; the availability of undrawn debt under the loan facilities; risks associated with independent engineer technical review and impacts on availability and/or timing of access to loan facilities; the availability of and changes in terms of financing; the ability of the Magino project to become one of the largest and lowest cost gold mines in Canada; the ability of the Company to complete the drill programs in line with public guidance (if at all); the realization of mineral reserve estimates; risks associated with the winding down of Mexican mines; risks associated with achieving estimated production and mine life of the various mineral projects of the Company; risks of employee and/or contractor strike actions; risks associated with the Company's ability to recruit, retain and maintain workforce necessary to achieve its objectives; timing of approval for remaining permits or modifications to existing permits; risks associated with achieving the benefits of the development potential of the properties of the Company; risks associated with the future price of gold; risks associated with the estimation of mineral reserves and resources and the possibility that future exploration results may not be consistent with Company's expectations and that resources may not be converted into reserves. 

These factors are discussed in greater detail in the Argonaut's most recent Annual Information Form dated March 31, 2023, and in the most recent Management's Discussion and Analysis for the three and six months ended June 30, 2023, both filed under the Company's issuer profile on SEDAR+. Argonaut cautions that the foregoing list of important factors is not exhaustive. Investors and others who base themselves on forward-looking statements should carefully consider the above factors as well as the uncertainties they represent and the risk they entail. 

Forward-looking statements included in this press release speak only as of the date of this press release. Although Argonaut has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Argonaut undertakes no obligation to update forward-looking statements if circumstances or management's estimates or opinions should change except as required by applicable securities laws.

The technical information contained in this press release has been prepared under the supervision of, and has been reviewed and approved by Mr. Brian Arkell, Argonaut's Vice President of Exploration and Mine Technical Services and Marc Leduc, Chief Operating Officer; both are Qualified Persons as defined by National Instrument 43-101 – Standards of Disclosure for Mineral Projects ("NI 43-101"). For further information on the Company's material properties, please see the reports as listed below on the Company's website www.argonautgold.com or on www.sedarplus.ca.

Argonaut Gold is a Canadian gold company with a portfolio of operations and multi-stage assets in North America. Focused on becoming a low-cost mid-tier gold producer, the Company is in the final stages of construction at its Magino Project, located in Ontario, Canada. Magino is expected to achieve commercial production in the third quarter of 2023 and become Argonaut's largest and lowest cost mine. The commissioning of Magino will be the first step in transforming the Company as it enters a pivotal growth stage. The Company also has three operating mines including the Florida Canyon mine in Nevada, USA, where it is pursuing additional growth, La Colorada mine in Sonora, Mexico and San Agustin mine in Durango, Mexico. Argonaut Gold trades on the Toronto Stock Exchange (TSX) under the ticker symbol "AR".

SOURCE Argonaut Gold Inc.

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