Gold Seeker Issue #90 ~ This Week In Mining: Earnings Season Continues, Metals Ready to Move Higher

Both gold and silver broke out last week, though we needed confirmation and follow-through Monday and Tuesday to be convinced this move is for real. Both metals broke some critical resistance levels, which have now become support. The break-out was driven by a 30-yr high in the CPI of 6.20% year/year. The Fed [and Janet Yellen, who has no understanding of economics] continue to believe that inflation will moderate by mid-2022, but they are sadly mistaken. While supply-chain issues are augmenting price inflation, there are significant structural issues that aren't transitory by any means.

It is hard, if not impossible, to fathom that the mainstream still believes what the Fed or government officials say regarding any forecast, i.e., inflation, GDP growth, etc. They have a horrid track record across the board that only grows worse each passing year. Further, Joe Biden is so clueless that he says the passage of his spending bills won't impact inflation, which couldn't be further from the truth. The Fed will need to continue to monetize a portion of deficit spending, especially if the 10yr yield remains well below the inflation rate as no investors desire a deeply negative real rate of return. Increased government spending (and deficit spending) will require the Fed to monetize debt, which is inflationary. This week was dominated by earnings.  

$EXK, $FSM, $GATO, $JAG, $KRR, $KGC, $ODV, $LUG, $ODV, $OR, $PAAS, $PVG, $NCM, $TFPM, $VGCX, $WM, $WDO

Endeavour Silver: Reported Q3 operating and financial results. The Company produced 1.305m oz Ag and 10.54k oz Au during the quarter and continues to hold back silver (1m oz) and gold (1.2k oz). Sales during the quarter were 699.5k oz Ag and 9.925k oz Au, which impacted financial results but will result in robust Q4 earnings. Cash costs and AISC were $8.16/oz and $17.46/oz. Endeavour generated $7.7m of operating cash flow. At quarter-end, the Company's cash position stood at $101.1m.

Endeavour Mining: The West-Africa-focused senior gold producer posted another solid quarter. The Company, which is expecting lower output in the 2H 2021, saw gold production of 382k oz Au in Q3 @ AISC of $904/oz. Endeavour generated $326m of operating cash flow and further improved its balance sheet such that net debt at quarter-end was $70m, despite returning $105m to shareholders. Its net-debt/Adj EBITDA leverage ratio fell to just 0.05x.

Fortuna Silver: Reported Q3 financial results. Silver and gold production during the quarter was 1.712m oz and 65.43k oz. AISC remained elevated at Lindero and unusually elevated AISC at Yaramoko. Production at Yaramoko was below plan for the quarter, and unplanned downtime due to the premature changeout of a SAG mill pinion bearing in August contributed to lower mill throughput. Further, resequencing of production stopes at the 55 Zone, due to isolated ground conditions causing bridging, which resulted in a reprioritization of lower grade stopes, contributed to the minor production shortfall. At Lindero, AISC was $1,270/oz, which increased the full-year average to $1,182/oz due to the timing of sustaining capital investments. San Jose saw lower silver and gold grades and, in turn, saw AgEq AISC increase to $15.51/oz (gold and silver) or approx. $11/oz Ag (net of gold byproducts). Fortuna generated operating cash flow of $39m, free cash flow from operations of $33.8m, and negligible FCF, including Roxgold transaction costs [$24.9m] and other adjustments.

There was also a report that came out on Thursday saying Fortuna’s San Jose mine may have to close as it hasn’t received an extension of its environmental permit, which has expired. However, the filing of the extension of the EIA is a normal and recurrent administrative procedure that is customarily granted so long as the filer is in compliance in all material respects with its environmental obligations. Under the current SEMARNAT administration and CV-19 restrictions, the process has become more cumbersome and taking longer than is typical. The Company is working with SEMARNAT and government authorities to resolve this matter and has obtained a provisional injunction from the Mexican federal court that allows continued operation of the San Jose mine beyond the expiry date of the EIA. FSM has initiated legal proceedings in the Federal administrative court in Mexico City to protest the lack of formal response to the application to extend the EIA and to seek an additional injunction to permit the continued operations of the San Jose mine until the extension is granted.

Gatos Silver: Reported Q3 earnings. The Company achieved record throughput at the CLG mine of 234,054 tons or 2.54ktpd, exceeding 2.5ktpd design capacity. Recovery rates continue to outperform that outlined in the FS, with silver recovery averaging 89%, lead recovery averaging 91%, and zinc recovery averaging 74%. Silver production (1.13m oz) was lower due to lower grades, well below the reserve grade. All-in sustaining costs (AISC) were elevated at $16.71/oz, which has been the case most of the year due to higher sustaining capital investment, which is expected to fall in the quarters and years ahead.

Jaguar Mining: The Brazil-focused junior producer saw its output drop roughly 1.4k oz from the year-ago period to 22.6k oz Au. Revenue for Q3 2021 decreased 6% to $40.7m, compared with $43.5m in Q3 2020, mainly due to a reduction in the average realized gold price of $1,753/oz in Q3 2021 compared to $1,896/oz for Q3 2020. Cash operating costs increased 36% to $833/oz as a result of reduced ounces sold and increased production costs (inflationary pressures), while All-in Sustaining Costs increased to $1,184/oz for Q3 2021, compared to $614 and $1,011 respectively per ounce of gold sold for the same period in 2020. Jaguar generated free cash flow of $9.8m vs. $14.9m in Q3 2020. At the end of Q3, Jaguar had a cash position of $38.1m.

Karora Resources: Q3 production totaled 30.365k oz Au, and 84.89k oz for the first three quarters of 2021 was ahead of budget, positioning the Corporation to deliver on full-year consolidated 2021 gold production guidance of 105k to 115k ounces. Third-quarter gold sales were 28.94k ounces compared to 30.4k ounces sold in the second quarter of 2021. Q3 AISC was $967/oz, 7% lower relative to Q3 2020. Karora generated operating cash flow of $27.9m, a 27% increase over Q3 2020. Karora increased its cash position to $86.7m as of September 30, 2021, after increased capital deployment to prepare new mining areas at Higginsville, accelerated exploration programs, and the receipt of $10.8m from the exercise of warrants.

Kinross Gold: Reported Q3 earnings results. Kinross remains on track to meet revised production guidance [due to the fire at Tasiast] of 2.1m oz AuEq oz. In Q3, Kinross produced 483k AuEq oz with cash costs and AISC of $870/oz and $1,225/oz. Kinross generated operating and free cash flow of $190.5m and $38.9m. Kinross had cash and equivalents of $586m and total liquidity of $2.1b at the end of Q3. Kinross will see significant production growth over the next two years, primarily driven by Tasiast 24k and the La Coipa restart. 2022 and 2023 AuEq production is estimated at 2.7m AuEq oz and 2.9m AuEq oz.

Kinross also released the results of the PFS for the Udinsk project In Russia and the FS results for the Lobo-Marte project in Chile. Both studies demonstrate that both projects have the potential to create significant value as large, low-cost operations. Together, these projects can potentially add 6.7m oz to Kinross Gold’s production profile [barring additional exploration upside]. Udinsk is projected to produce 285k oz Au p.a. over an initial seven-year mine life at AISC of just $580/oz Au. Lobo-Marte is projected to produce approx. 300-330k oz Au over a 14-year mine life [and two years of residual processing] at AISC of $680/oz AuEq.

Lundin Gold: The Company reported another strong quarter with gold sales of 111.6k oz Au (gold production of 107.66k oz). Cash costs and AISC were $650/oz and $804/oz. In Q3, the Company generated operating cash flow of $92.7m and free cash flow of $47.1m. The average grade of ore milled was 10.3 g/t, with average recovery of 88.80%. At quarter-end, the Company had cash of $221.8m and a working capital position of $136.1m. In addition, Lundin Gold made principal and interest repayments under the loan facility of $129m. As a result, Lundin's LT debt position has been reduced to $788.86m.

Osisko Development: Announced results from the 2021 exploration and category conversion drill program at its San Antonio Gold development project In Mexico. 27,000m have been drilled thus far in 2021, consisting of 156 holes. This release includes the results of the first 41 holes from the Sapuchi. Highlights include:

• 12.50m @ 2.16 g/t Au
• 10.25m @ 2.37 g/t Au
• 9.45m @ 1.58 g/t Au and 32.51 g/t Ag
• 12.65m @ 2.94 g/t Au and 4 g/t Ag
• 9m @ 2.24 g/t Au and 14.3 g/t Ag
• 21.65m @ 2.14 g/t Au and 3 g/t Ag
• 9.10m @ 2.19 g/t Au and 5.3 g/t Ag
• 39.9m @ 1.02 g/t Au
• 29.20m @ 1.52 g/t Au and 13.7 g/t Ag

Osisko Gold Royalties: The mid-tier royalty and streaming company earned 20.03k AuEq in Q3 vs. 16.74k oz in Q3 2020. The Company generated operating cash flow of $44.1m. Osisko GR also repurchased 1.7m common shares for $26m under the ongoing NCIB. Osisko GR is nearing the start of a material multi-year growth spurt. We will see an increase in attributable production in 2022 driven by the completion of the Mantos Blanco expansion, the inclusion of the Renard diamond stream [from April 2022], start-up of the San Antonio precious metals stream (exact timing unknown), continued ramp-up at Eagle, and the start of production at two assets Osisko has royalties on including Santana and Ermitano. Osisko GR has ample capacity to consummate new deals, but it would need to liquidate some of its 75% interest in Osisko Development to raise some additional cash.

Pan-American Silver: Reported improved quarterly operating and financial results, which will continue to improve over the next few quarters. Silver production was 4.8m oz due to improved ventilation air volumes allowing accelerated mine development; mining rates increased 21% over Q2 2021 and will continue to do so through at least year-end. Gold production totaled 142.6k oz, which was marginally impacted by a delay in completing leach pad 1 south at Dolores, resulting in an in-heap gold inventory build-up of 8.1k oz and 37k oz year-to-date. Inventory levels at Dolores will normalize in 2022. Cash costs and AISC for Pan American’s silver segment were $11.92/oz and $16.30/oz (costs were impacted by increased mining costs at La Colorada for ventilation upgrades and other sustaining capital investments. AISC at La Colorada will gradually fall over the coming quarters. Gold segment cash costs and AISC were $922/oz. and $1,176/oz. Full-year consolidated precious metals production is estimated to be between 19.0 and 20.0 million ounces of silver and 560.0 to 588.0 thousand ounces of gold. The estimated ranges for Silver Segment Cash Costs and AISC have increased to $11.60 to $12.50 and $15.75 to $16.75.

Pretium Resources: Australia's largest gold producer, Newcrest Mining, announced it would acquire Pretium Resources. This adds an asset of scale in tier-I mining jurisdiction to Newcrest's operating portfolio and increases companywide production well above 2m oz Au p.a. Pretium shareholders will receive consideration of C$18.50/share (24.2% increase over the 10-day volume-weighted average price as of November 8, 2021. In addition, shareholders may elect to receive cash or 0.8084 Newcrest share for every Pretium share held. It is subject to a maximum cap of 50% cash and 50% Newcrest shares.

Triple Flag Metals: The newest publicly traded mid-tier royalty and streaming Company reported strong Q3 results. Year over year, revenue increased 52% (to $37.1m), operating cash flow increased 53% (to $29.5m), and a 62% increase in gold-equivalent ounces sold (to 20.746k oz from 12.82k oz).

Victoria Gold: The Company reported Q3 operating and financial results, highlighted by record quarterly gold production. In Q3, Victoria produced 55.83k oz Au and sold 53.25k oz @ AISC of $961/oz. The Company generated operating cash flow of $42m. AISC should continue to fall, though full-year AISC is forecast at $1,050-$1,175/oz. At Quarter-end, the Company has cash and equivalents of $14.8m and a working capital position of $44.3m. Victoria estimates there are over 100k recoverable ounces in inventory, setting up for a strong finish to the year. The Company initiated “Project 250” aimed at increasing average annual gold production at the Eagle mine to 250k oz Au by 2023.  

Wallbridge Mining: Announced an MRE for its Fenelon and Martiniere deposits on the Detour-Fenelon Gold trend.

• Total Combined Indicated Resources: 2.67m oz Au @ 1.91 g/t [2.16m oz from Fenelon]
• Total Combined Inferred Resources: 1.723m oz Au @ 1.69 g/t [1.467m oz from Fenelon]

Wesdome: Reported Q3 operating and financial results. The Eagle River Complex produced 23.83k oz Au and remains on track to achieve the mid-to-high end of 2021 guidance (92-105k oz). Kiena, Wesdome's growth asset, is ramping up production, and during Q3, it produced 5.5k oz Au (pre-commercial production). As a result, it will significantly increase cash flow generation in the new year (commercial production expected in Q2, 2022). Wesdome is well capitalized with $69.5m of cash on hand. At Eagle, cash costs and AISC were $783/oz and $1,152/oz. Wesdome generated operating cash flow of $33.9m, but due to the ongoing ramp-up and capital investment at Kiena, free cash flow was negative $9.1m. Free cash outflow resulted from $41.1m investment into its operations, including $27.5m at Kiena.