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Argonaut Gold Announces Third Quarter 2017 Operating and Financial Results

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Third Quarter Production of 24,280 Gold Equivalent Ounces Including San Agustin Pre-commercial Production

TORONTO, Nov. 2, 2017 /CNW/ - Argonaut Gold Inc. (TSX: AR) (the "Company", "Argonaut Gold" or "Argonaut") is pleased to announce its financial and operating results for the third quarter ended September 30, 2017.  The Company reports quarterly net income of $0.4 million or earnings per share of $0.00 derived from the sale of 22,609 gold equivalent ounces1 ("GEO" or "GEOs"), which generated cash flow from operations before working capital changes of $5.7 million. The Company produced 24,280 GEOs during the third quarter, including pre-commercial production from the San Agustin mine of 2,932 GEOs. As the San Agustin project was in the pre-production development stage as at September 30, 2017, the GEOs produced are excluded from the revenue, sales, net income, adjusted net income (loss), cash flows from operations, cash cost and all-in sustaining cost numbers presented in this release. All dollar amounts are expressed in United States dollars, unless otherwise specified (C$ refers to Canadian dollars).

CEO Commentary
Pete Dougherty, President and CEO stated: "As expected and guided throughout the year, the third quarter was to be our lowest quarterly production primarily due to an approximately 45% reduction in crushing capacity at our El Castillo mine when we shut down and relocated the west crusher to San Agustin. This crusher is now fully operational at San Agustin, as evidenced by the improvement in crushing rates month-over-month throughout the quarter.  With our production year-to-date, we are on track to deliver full year production of between 122,000 and 130,000 GEOs. I'm very pleased to see San Agustin delivered on schedule, substantially under budget and, more importantly, with no major safety or environmental issues. As we look to the future, with approximately 60% production growth from our existing Mexico operations by 2019 and the pending announcement of the Magino feasbility study results, we provide not only short-term upside but also longer-term growth potential." 

Key operating and financial statistics for the third quarter of 2017 are outlined in the following table:

 

(in millions except for earnings per share)

3 months ended
September 30



Change

9 months ended
September 30

 

Change


2017

2016

2017

2016

Revenue

$28.7

$35.0

(18%)

$115.6

$109.5

6%

Gross profit

$3.6

$6.9

(48%)

$23.1

$23.6

(2%)

Net income

$0.4

$0.2

100%

$18.7

$3.8

392%

Earnings per share – basic

$0.00

$0.00

-

$0.11

$0.02

450%

Adjusted net income (loss)2

($0.4)

$3.9

(110%)

$8.6

$8.8

(2%)

Adjusted earnings (loss) per share – basic2

($0.00)

$0.02

(100%)

$0.05

$0.06

(17%)

Cash flow from operating activities before changes in non-cash operating working capital

$5.7

$8.4

(32%)

$34.2

$26.5

29%

Cash and cash equivalents

$37.5

$50.4

(26%)

$37.5

$50.4

(26%)

GEOs loaded to the pads1,5

64,486

57,765

12%

173,335

172,491

0%

GEOs projected recoverable1,3,5

36,630

29,338

25%

100,772

89,319

13%

GEOs produced1,4,5

24,280

26,332

(8%)

91,717

87,713

5%

GEOs sold1,5

23,160

26,069

(11%)

93,080

87,311

7%

Average realized sales price per gold ounce sold

$1,270

$1,344

(6%)

$1,250

$1,257

(1%)

Cash cost per gold ounce sold2

$893

$896

0%

$798

$812

(2%)

All-in sustaining cost per gold ounce sold2

$1,063

$1,054

1%

$931

$953

(2%)

1 GEOs are based on a conversion ratio of 70:1 for silver to gold for 2017 and 65:1 for 2016.  This is the referenced ratio for each year throughout the press release.

2 Please refer to the section below entitled "Non-IFRS Measures" for a discussion of these Non-IFRS Measures.

3 Recoverable ounces - El Castillo expected recovery rates: ROM oxide 50%, crushed oxide 70%, ROM transition 40%, crushed transition 60%, crushed sulphides argillic 30% and crushed sulphides silicic 17%; San Agustin expected recovery rates: gold 66% and silver 16%; La Colorada expected recovery rates: gold 60% and silver 30%.

4 Produced ounces are calculated as ounces loaded to carbon.

5 The three and nine months ended September 30, 2017, includes pre-commercial production from San Agustin.

 

Third Quarter 2017 and Recent Company Highlights:

  • Corporate
    • Entered into zero cost collar Mexican peso ("MXN") to US dollar ("USD") contracts for $18 million to be invested in future development capital in Mexico with downside protection of 17.5 MXN:1 USD and participation up to 21 MXN:1 USD from January 2018 to December 2018.
  • El Castillo
    • From December 31, 2016 to July 1, 2017, increased pit-constrained Measured and Indicated Mineral Resources from approximately 486,000 to 751,000 contained gold ounces after depletion (see press release dated September 21, 2017) consisting of approximately 77,000 ounces measured within approximately 4.5 million tonnes at 0.54 g/t and 673,000 ounces indicated within approximately 59.5 million tonnes at 0.35 g/t.
    • Third quarter production of 11,521 GEOs.
    • Averaged nearly 45,000 tonnes per day mined.
    • Placed 1.7 million tonnes of ore containing approximately 15,600 gold ounces on the leach pads.
    • Initiated design improvements in the CR2 crusher to increase capacity from 6,000 tonnes per day to 14,000 tonnes per day.
    • Began construction of the Victoria heap leach pad.
  • San Agustin
    • Third quarter pre-commercial production of 2,932 GEOs.
    • Achieved first gold pour on September 18, 2017.
    • Achieved commercial production on October 1, 2017.
    • Project delivered with a capital investment of approximately $32 million, which is 25% under budget from the initial capital estimate of $43 million.
  • La Colorada
    • From December 31, 2016 to July 1, 2017, increased pit-constrained Indicated Mineral Resources from approximately 560,000 and 9.9 million contained gold and silver ounces respectively to approximately 586,000 and 9.9 million contained gold and silver ounces respectively, after depletion (see press release dated September 21, 2017) within approximately 29.9 million tonnes grading 0.61 g/t gold and 10.3 g/t silver.
    • Third quarter production of 9,827 GEOs.
    • Averaged over 60,600 tonnes per day mined.
    • Averaged over 12,300 tonnes per day through the crusher.
    • Placed 1.3 million tonnes of mineralized material containing approximately 21,000 gold ounces and 360,000 silver ounces on the leach pads.
    • Initiated construction of the Northeast Phase 2 leach pad.
  • Magino
    • Advanced feasibility study.
      • Base case will be a 10,000 tonne per day plant with a scalable design to 30,000 tonne per day should economics warrant such an expansion in the future.
      • Anticipate releasing study results during the fourth quarter
    • Advanced Environmental Assessment ("EA") process.
    • Signed Collaborative Agreement with the Red Sky Métis Independent Nation and continued to consult with and work towards agreements with other Indigenous communities.

Financial Results – Third Quarter 2017
Revenue for the three months ended September 30, 2017 was $28.7 million, a decrease from $35.0 million for the three months ended September 30, 2016.  During the third quarter of 2017, gold ounces sold totaled 22,206 at an average realized price per ounce of $1,270 (compared to 25,429 gold ounces sold at an average realized price per ounce of $1,344 during the same period of 2016).

Production costs for the third quarter of 2017 were $20.3 million, a decrease from $23.6 million in the third quarter of 2016 primarily due to the decrease in gold ounces sold. Cash cost per gold ounce sold (see Non-IFRS Measures section) was $893 in the third quarter of 2017, comparable to $896 in the same period of 2016. Depreciation, depletion and amortization ("DD&A") expense included in cost of sales for the third quarter of 2017 totaled $4.8 million, a slight increase from $4.5 million in the third quarter of 2016, due to the increase in the average DD&A expense per ounce in work-in-process inventory. As a result of the non-cash impairment loss on non-current assets recorded during the year ended December 31, 2015, the average DD&A in work-in-process inventory decreased throughout 2016. During 2017, the average DD&A in work-in-process inventory began increasing as the effect of the non-cash impairment loss on average DD&A lessened.

General and administrative expenses for the third quarter of 2017 were $2.7 million, comparable to $2.6 million in the same period of 2016.

Gains on foreign exchange derivatives for the third quarter of 2017 were $0.2 million, an increase from nil in the third quarter of 2016, due to gains on the Company's zero-cost collar contracts on the MXN.

Other income for the third quarter of 2017 was $0.0 million, an increase from other expense of $0.6 million in the third quarter of 2016, primarily due to differences in foreign currency translation effects.

Income tax expense for the third quarter of 2017 was $0.2 million compared to $3.2 million in the same period of 2016.  The decrease in income tax expense is primarily due to an increase in the recognition of previously unrecognized Mexican deferred tax assets.

Net income for the third quarter of 2017 was $0.4 million or $0.00 per basic share, an increase from $0.2 million or $0.00 per basic share for the third quarter of 2016.

Financial Results – First Nine Months 2017
Revenue for the nine months ended September 30, 2017 was $115.6 million, an increase from $109.5 million for the nine months ended September 30, 2016.  During the first nine months of 2017, gold ounces sold totaled 90,129 at an average realized price per ounce of $1,250 (compared to 84,962 gold ounces sold at an average price per ounce of $1,257 during the same period of 2016).

Production costs for the nine months ended September 30, 2017 were $74.9 million, an increase from $71.6 million in the first nine months of 2016 primarily due to the increase in gold ounces sold. Cash cost per gold ounce sold (see Non-IFRS Measures section) was $798 in the first nine months of 2017, comparable to $812 in the same period of 2016. DD&A expense included in cost of sales for the nine months ended September 30, 2017 totaled $17.6 million, a slight decrease from $17.8 million in the nine months ended September 30, 2016, due to the decrease in the average DD&A expense per ounce in work-in-process inventory for the period. Additionally, included in cost of sales in the nine months ended September 30, 2016 is a non-cash impairment reversal of $3.6 million related to the net realizable value of work-in-process inventory at the El Castillo mine, as a result of an increase in the price of gold during 2016.

General and administrative expenses for the nine months ended September 30, 2017 were $8.8 million, an increase from $7.7 million in the same period of 2016, primarily due to employee transition costs.

Gains on foreign exchange derivatives during the first nine months of 2017 were $2.6 million, an increase from nil in the first nine months of 2016, due to gains on the Company's zero-cost collar contracts on the MXN.

Other income for the nine months ended September 30, 2017 was $3.0 million, an increase from other expense of $3.6 million in the same period of 2016, primarily due to differences in foreign currency translation effects.

Income tax recovery for the nine months ended September 30, 2017 was $0.0 million compared to income tax expense of $7.8 million in the same period of 2016.  The change is primarily due to the foreign exchange effects of the strengthening MXN on the calculation of deferred taxes, partially offset by higher taxable income during the first nine months of 2017.

Net income for the nine months ended September 30, 2017 was $18.7 million or $0.11 per basic share, an increase from $3.8 million or $0.02 per basic share for the nine months ended September 30, 2016.

Operational Results – Third Quarter 2017
The Company anticipated and previously guided that the relocation of the west crusher from El Castillo to San Agustin would reduce crushing capacity at El Castillo by approximately 45%, which would contribute to the lowest quarterly production in 2017 being during the third quarter.  The Company also budgeted for a seasonal reduction in operational productivity and metal leaching during the third quarter due to expected issues experienced in previous years during the rainy season, which typically runs from mid-June to mid-October. Costs and production were within the anticipated ranges for the third quarter. 

Bill Zisch, Chief Operating Officer, commented: "We knew the production during the third quarter would be the lowest of the year, as we temporarily reduced our crushing capacity in order to relocate a crushing and stacking system from El Castillo to San Agustin.  In addition, our third quarter plans anticipated seasonal inefficiencies during the rainy season from July to September.  These provisions for lower productivity helped us meet internal expectations this quarter.  Looking forward, we expect the fourth quarter will be our highest quarterly production in 2017, primarily due to the ramp-up and normalization of San Agustin operations.  As a result of the Company's performance to date, we are well positioned to deliver within our production guidance range at between 122,000 to 130,000 GEOs."   

 

THIRD QUARTER 2017 EL CASTILLO PIT OPERATING STATISTICS




3 Months Ended Sept 30

  9 Months Ended Sept 30


2017

2016

 Change

2017

2016

 Change

Mining







Tonnes ore (000s)

1,722

2,625

(34%)

6,200

8,146

(24%)

Tonnes waste (000s)

2,411

3,804

(37%)

8,446

12,174

(31%)

Tonnes mined (000s)

4,133

6,429

(36%)

14,646

20,320

(28%)

Tonnes per day (000s)

45

70

(36%)

53

74

(28%)

Waste/ore ratio

1.40

1.45

(3%)

1.36<

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