Gold Seeker Report: This Week in Mining Issue #11: Earnings Season and M&A
Chris Marchese
Chief Mining Analyst, GoldSeek & SilverSeek
Week Ended May-1, 2020
$AEM, $ASR.TO, $ALIAF, $AGI, $CG.TO, $CAGDF, $EGO, $EQX, $FSM, $LIO.V, $LOMLF, $LUG.TO, $FTMNF, $NCMGY, $NCM.AX, $MAG, $MTA, $NUAG.V, $NUPMF, $NEE.V, $NHVCF, $OGC.TO, $OCANF, $OR, $OSK.TO, $OBNNF, $PVG, $SA, $SVM, $SILV, $TXG.TO, $TORXF, $AUY
Agnico-Eagle: Reported Q1 2020 financial results as well as new 2020 production guidance to reflect the temporary shutdown of seven of its eight mines. Operating cash flow in Q1 was $163.4m and $205m before changes in non-cash working capital. This compares favorably to cash flow from operations in Q1 2019, which was $148.7m and $171m before changes in non-cash working capital. There was a minimal impact due to suspension of select mining operations and a larger impact as a result of higher costs at the Meadowbank complex and Meliadine mine, which were ramping up production during the quarter. Q1 AISC was elevated at $1,099/oz. Updated 2020 production is now forecast to be 1.63m-to-1.73m oz. Au with AISC of $975-$1,025/oz., compared to original guidance of 1.875m oz. 2021 and 2022 production guidance remains unchanged at 2.05-2.1m oz.
Alacer Gold: Reported Q1 2020 operating and financial results. The company produced 88k oz. Au with AISC of $700/oz., resulting in $47m of free cash flow generation. The company also reduced its net debt position to $25m at the end of the quarter end.
Alamos Gold: With a strong start to the year, the company produced 110k oz. Au with AISC of $1,010/oz. driven by lower costs and Mulatos. The company generated $81.7m in operating cash flow before changes in non-cash working capital. The company ended the quarter with $215m in cash and $15m in equity securities, which represents a drawdown of $100m on its $500m line of credit in response to the COVID pandemic. The company's cash balance was significantly lower net of the drawdown as it repurchased a 3% NSR royalty on Island Gold for $55m, which will reduce cash costs by approx. $45/oz. The company will really increase free cash flow in the 2H 2020 and the Young-Davidson mine expansion will be complete and sustaining and expansionary capital investment see a material fall. This is unlikely to last more than 12 or so months as the company has a very deep pipeline of growth projects.
Centerra Gold: The company's two key assets, Kumtor and Mt. Milligan had another strong quarter, producing 186k oz. at AISC of $712/oz. Mt. Milligan continues its relative underperformance as expected as it trends downward and had roughly 2.5-Yrs. of 170-180k oz. production of annual production left. Oskut, its newest project poured its first gold in January. Cash flow from operations was just over $120m. Its cash position was $194m and $136m in debt.
Eldorado Gold: Reported Q1 production and financial results. The company-maintained operations in Turkey and Greece and Lamaque recommenced production on April 15th 2020, after a temporary suspension from March 25th 2020. As a precautionary measure, the company drew down $150m on its credit facility. Q1 production totaled 116k oz. in Q1, a 40% increase over the comparable quarter in 2019. The company is maintaining guidance of 520-550k oz. with AISC of $850-$950/oz. The company has a strong liquidity position of $364m. The company generated $70m in cash flow from operations before changes in non-cash working capital.
Equinox Gold: The temporary suspension of mining activities at one of the company's flagship assets, Los Filos in Mexico, has been extended until May 30th, 2020. Th earliest potential start-up data is May 18th in areas with low or no cases of COVID. Production continues at a reduced level as the company continues processing solution from the Los Filos heap leach pads. Further, the company is ramping up production at its Pilar Mine in Brazil. Phase I construction of the Castle Mountain gold mine continues and is 75% complete. The company also continues to advance engineering and economic studies related to the Los Filos CIL plant and the Santa Luz restart, with the objective of making construction decisions for both projects later this year. Both will have a short-timeline from construction to completion. The company also had a cash inflow of C$20.7m from the exercise of warrants by Pacific Road Resources.
Fortuna Silver: The mandated suspension of operations in Peru has been extended to May 10th, 2020. Mines are allowed to operate with only essential personnel. The company has put in place protocols for the well-being of its work staff. These include Medical screening (health checks before travelling to an arrival at the mine site and regularly taking temperatures before entering and regularly once on site), only essential personnel. Person protective equipment, disinfecting vehicles that travel to and from the mine site, social distancing, and site and camp hygiene. It is worth noting, once again, that Fortuna is basically in a race against the clock to complete construction and ramp up production at Lindero before it runs out of cash, though it is looking like it will win the race.
Lion One Metals: One of my favorite junior exploration companies is mobilizing three drills for its aggressive 2020 dry season exploration campaign at Tuvatu, Fiji. Drill rig one has been operational through the latest seasonal wet season and is currently testing down dip extensions at Tuvatu West; 1500m depth capability drilling NQ-sized core. Drill rig two has been reconditioned and is ready for mobilization to the Kingston-Biliwi prospect 2km north of Tuvatu in newly acquire tenements covering northern half of the Navilawa caldera; 250m depth capability. Drill rig three is recently purchased and designated for new targets within the new Navilawa tenements including Banana Creek, a Tuvatu-style target displaying multiple high-grade outcropping lodes; 1500m depth capability.
Lundin Gold: It is looking increasingly likely that Newcrest Mining [$NCMGY / $NCM.AX] will acquire Lundin Gold at some point in the future. In addition to Newcrest having upped its position in the company multiple times and the fact it holds a 32% interest in the company, Newcrest recently announced it has acquired the project financing package from Orion Mine Finance and funds managed by Blackstone. The combined project financing package is comprised of a gold prepay credit facility for $150m, a stream loan credit facility of $150m and an offtake agreement for 50% of gold production from Fruta del Norte, up to a maximum of 2.5m oz. This is another way of slowly acquiring an additional interest in the company as Newcrest could cancel the debt obligations and later acquire the company at a lower price. Whether this will be the case remains to be seen but given recent events in PNG and the uncertainty surrounding Wafi-Golpu, this would make for a perfect fit as Newcrest would then have two large operations in Australia, one operation in PNG (and a development project), one in Canada and one in Ecuador.
MAG Silver: After initially contemplating debt financing to fund the remaining cash calls to bring Juanicipio in production, the company announced a C$60m (US$42.5m) private placement with Eric Sprott (his single largest silver investment). While this us unlikely to fill the remaining funding gap in full and provide for sufficient working capital, MAG could very well obtain a $30m credit facility or issue 2-3m shares.
Metalla Royalty & Streaming: One of the smaller players in the royalty niche, Metalla continues to acquire value adding royalties to its portfolio. While it will never be a big player in the royalty space, bigger isn't necessarily better. It's also about value creation. Metalla has been quite stealthy in adding a number of these small albeit value-added royalties. It recently announced it entered into a share purchase agreement with Idaho Resources Corp (IRC), a privately held Nevada corporation, whereby a subsidiary of Metalla will acquire 100% of the outstanding shares of IRC for $4m in cash and shares. Through this acquisition Metalla adds a 0.50% gross overriding royalty (GOR) on the Anglo/Zeke block in Eureka Country, Nevada, located on trend to the southeast of the Cortez operations and Goldrush project owned by Nevada Gold Mines (JV between Barrick and Newmont). It also added a 1.05% GOR covering NuLegacy Gold Corp's Red Hill project in Eureka Country, contiguous to the southeast of the Anglo/Zeke claims. It would be nice to see the company begin generating at least $10-$15m in free cash flow annually but that could take some time as its royalty portfolio is composed of assets rather far from production.
New Pacific Metals: The company announced a leadership transition as Dr. Rui Feng, the company's founder and CEO has stepped down. Dr. Mark Cruise, the COO, is the new CEO. He has an impressive track record in mining, most recently building Trevali mining from a company with no operating assets to that with four operations and a deep pipeline of growth, diversified throughout parts of Africa, Peru, and Canada.
Northern Vertex: The company reported its fiscal Q3 production results and an operational update related to continuous improvement initiatives, exploration drilling, and capital projects. The Moss mine is an unimpressive operation but companies with marginal and sub-par projects tend to outperform in bull markets. For the three-month period ended March 31st, 2020, the company produced 7.47k oz. Au and 80.78k oz. Ag [8.55k AuEq oz.]. The company announced a second leach pad was commissioned in early March. The company has been stacking crushed ore on the new pad over the last month. Further, management commissioned a new intermediate leach solution system "ILS" to enhance recoveries. This should increase production but the company is still far away from being considered a takeover target. Practically speaking, it will need to produce approx. 60-100k oz. of annual production. Generally, companies with assets that produce under 100k oz. Au aren't large enough for a buyout but never say never.
OceanaGold: The COVID-19 situation in New Zealand has gotten considerably better over recent weeks. The NZ government decreased the alert level from level four (only essential businesses permitted) to alert level three (additional businesses can resume operating if they can demonstrate required safe operating practices). At its Waihi operations, development of the Martha underground with regional exploration activities have resumed while adhering to proper safety practices. At Macraes, the company resumed mining and processing activities under strict and safe operating practices.
Osisko Gold Royalties: The company amended its small 75% silver stream agreement with Taseko on its Gibralter copper mine. In exchange for C$8.5m (US$6.12m), the on-going per ounce of refined silver will be reduced from $2.75/oz. to nil. This increases Osisko's operating margin on the silver stream to 100% from 80%.
Osisko Mining: What else to say but Osisko continues its successful exploration efforts as infill drilling intersects high-grade on Lynx and Triple Lynx at its 100% owned Windfall project, which is looking to be one of Canada's next low-cost high-grade gold mine of scale. Operations remain temporarily suspended due to the Quebec government closure of all non-essential business. When drilling resumes, it will remain focused on the Lynx deposit, the main mineralized zones, and down plunge exploration in the central areas of the mineralized system. Some drill highlights from this round of infill drilling include:
? 2.7m @ 35.3 g/t Au
? 3.5m @ 40.2 g/t Au
? 2m @ 104 g/t Au
? 2.6m @ 76.5 g/t Au
? 4.2m @ 41.2 g/t Au
? 2.3m @ 73.6 g/t Au
? 2.4m @ 11.1 g/t Au
Pretium: The company's BOD appointed Jacques Perron as President and CEO. With more than 35-Yrs. In the global mining industry, he as extensive technical and operational experience. More recently, Mr. Perron was President and CEO of Thompson Creek Metals before it was acquired by Centerra Gold in 2016. Prior to that, he was President and CEO of St. Andrew Goldfields, and senior vice president of Iamgold. He succeeds Joseph Ovsenek, who was Pretium's President and CEO since 2017. Pretium Resources remains an attractive takeover target for a large mid-tier or emerging senior producer, though to be acquire Mr. Perron will have to show operational consistently, which means 350-400k oz. Au p.a. with AISC