Gold Seeker Report Issue #38 ~ This Week In Mining: Some Amazing Q3 Earnings & Has The 3-Month Consolidation Ended?

A volatile week in the metals but gold broke the $1,920-$1,925/oz. resistance level on good volume and just as importantly, the mining stocks led the way on Thursday and Friday. To give you an idea of the magnitude of this move, on Thursday, Gold Seeker’s actively managed portfolio was up a total of 11.50% despite the position remaining in excess of $25k. Sign-up for our free email list or sign up and try out our  30 day risk-fee free trial of our Gold Seeker insiders membership, which includes but isn’t confined to our monthly newsletter, look over my shoulder actively managed portfolio, company reports (analysis and appraisal (valuation)) at Goldseeker.com. Our team has a combined 6 decades experience in the industry and cater to investors of all risk appetites from the large senior producers down to the small exploration companies.

I don’t think we are completely out of the woods and won’t be until sometime in January. If the Democrats have a clean sweep; The Presidency, Senate, and the House we could see a big-sell in the general market which if severe enough would bleed over into the metals and mining stocks (which could be cause by panic selling as corporate tax rates will drastically increase as well as taxes on capital gains). Regardless, we will hit countless all-time nominal record highs in gold in 2021 and likely a new nominal higher in silver as well.

$AR.TO, $BTG, $CXB.TO, $CG.TO, $AG, $FNV, $IAG, $KGC, $KL, $NGD, $PAAS, $RGLD, $SILV, $SVM, TXG.TO, $WDO.TO

Argonaut Gold: Q3 production totaled upwards of 49k oz. AuEq, generating operating cash flow of $29m. It was a weak quarter as AISC of $1,401/oz. Florida Canyon continues to be a troubled asset. The one bright spot for Argonaut is that it will shortly begin construction of its high quality, low cost, scalable Magino mine in Canada. The company would have been far better off selling one of its other development or producing assets, keeping and building Ana Paula, this way in a few years, it would be anchored by two high-quality, low-cost assets with significant production and exploration upside.

B2Gold: Like many companies, B2 reported robust earnings and set multiple records including revenue and cash flow generation in Q3. The company produced 248,733 oz. Au from the company’s three operating assets with cash costs and AISC of $411/oz. and $766/oz. During the quarter, the company announced the successful commissioning of the Fekola mill expansion to 7.5mtpa from 6mtpa (+25% increase) but it has the potential to run above the expanded throughput rate with on-going analysis to determine the optimum throughput rate. B2Gold remains an attractive takeover target for a couple of largest senior producers, with Barrick the most likely candidate as it is comfortable operating in Mali, and Africa in general. This would more than replace the lost production from Porgera and lower companywide AISC and does fit its acquisition criterion; a mine producing 500k oz. Au, mine life of at least 10yrs and costs in the lower half on the industry cost curve. 

Calibre Mining: One of our favorite junior producers posted a stellar quarter, which drove the stock price to record highs. The company produced 45.34k oz. Au during the quarter, 22.26k oz. from Libertad @ AISC of $902/oz. and 22k oz. @ AISC of $934/oz. The company generated $46m in operating cash flow and $30m in free cash flow. The company made several moves in the quarter, positioning it perfectly for production growth over the next several years. Calibre received the last permit for the Pavon Norte open-pit, with initial deliveries to the Libertad mill expected in Q1 2021. The company also acquired the remaining 70% interest in the Eastern Borosi project from IAMGOLD, which will be a key source of mill feed to Libertad in the near future and increase companywide production as it currently has resources of 700k oz. Au and 11.3m oz. Ag. Calibre paid off its debt owed to B2Gold as part of the acquisition of $15.5m, leaving the company with a net cash position of $55.7m.

Centerra Gold: The company reported production of 241.5k oz. Au (and 23.3m lbs. Cu) with Cash cost and AISC of $386/oz. and $528/oz., generated operating and free cash flow of $358.8m and $281m. The company maintains its full year production guidance of 740-820k oz. Au. The company improved its financial position with $484.2m in cash and no debt. The company has reduced full year operating costs and AISC to $410-$460/oz. and $740-$790/oz. The company has one of the leading free cash flow yields (FCF/Market capitalization) both for 2020 and 2021E, followed by Endeavour Mining, SSR Mining and Centamin.

First Majestic: The company reported a record quarter in revenue, net operating income and cash flow. In Q3, the company produced 3.16m oz. Ag, a 6% decrease over the same period on 2019. Cash costs and AISC came in very low at $2.49/oz. and $9.94/oz., largely attributable to increased gold sales and prices from finished goods inventory that rolled over from Q2, so expect costs to increase in Q4.  First Majestic generated $52.2m in operating cash flow (vs. $34.6m in Q3 2019). The company ended the quarter with a record $232.4m in cash and equivalents (of which $58.3m was from the Eric Sprott Investment). I would guess the company is planning an acquisition, a very aggressive exploration program or development of another project, otherwise it would have unnecessarily diluted shareholders. Time will tell.

Franco-Nevada: Reported Q3 operating and financial results. The company had attributable production of 134,817 AuEq oz. (of which 108.7k oz. are gold, with rest composed of silver, PGM’s and other minerals). The company also realized $22.8m in revenue from its energy assets. The company generated approx. $210m in operating cash flow. The company expects full year attributable AuEq oz. to be near the high end of the previously provided 475-505k AuEq provided.

IAMGOLD: Generated $108.4m in operating cash flow and $80m in mine-site free cash flow but didn’t report actual free cash flow in its earnings press release, so it is likely closer to $70m. The company produced of 159k oz. Au (sales of 162k oz. Au) at cash costs and AISC of $1,006/oz. and $1,206/oz.

Kinross Gold: Another strong quarter for the company with a material increase in cash flow. The company produced 603k AuEq oz. (bringing the total to 1.74m oz. over the first 9-months) with cash costs and AISC of $737/oz. and $958/oz. Kinross generated operating cash flow of $544.1m in Q3, double the amount relative to the comparable period in 2019. Cash and equivalents stood at $933.50m (a decrease from 1.53b at end of Q2 as the company repaid $750m drawn on its $1.5b credit facility and the acquisition of the Peak project) and has total available liquidity of $2.5b. The company has a nice growth profile over the next 3 years and later in the decade. The company is also mulling over either selling or spinning off its operations in the America’s as it has several key assets and development projects in West Africa and Russia.  

Kirkland Lake Gold: Once again, the company reported robust cash flow generation despite lower output from Macassa, producing 339,584 oz. Au @ AISC of $886/oz. ($622/oz excluding Detour Lake). The company generated $431.1m of operating cash flow and record free cash flow of $275.7m. The company ended the quarter with $848.5m, a 58% increase vs. the end of Q2. The company has spent over $500m of share buybacks so far in 2020 and increased its quarterly dividend by 50% to $0.1875/share. The company continues to have exploration success at its three flagship assets:

Detour Lake: Results in Saddle Zone support the Company’s view that a much larger deposit exists around the Main Pit and West Pit locations than is currently included in Mineral Reserves;

 Fosterville: Infill drilling in the Swan Zone intersected higher than expected grades; Drilling confirmed substantial scale and growth potential of mineralized systems at Cygnet, Robbin’s Hill and Harrier;

 Macassa: New results included exceptional grades being intersected near contact of South Mine Complex (“SMC”) and high-grade mineralized zones vertically stacked along Amalgamated Break.

New Gold: Produced 115.5k oz. AuEq during the quarter (79k oz. Au, 171k oz. Ag and 18.2m lbs. Cu). The company is still unable to keep costs under control with cash costs and AISC of $822/oz. and $1,313/oz. Despite its high costs, the company was able to generate $84m in operating cash flow. Had the company not become extremely overleveraged and sold off all of its most valuable assets over the past three years, the company would be in far better shape today in terms of value.

Pan-American: The company generated $106m of operating cash in Q3 despite several being suspended through a portion of Q3 and other projects which led to lower output. For example, Its Huaron and Morococha mines in Peru were suspended for most of Q3 with both resuming operations before the end of Q3. The company is nearing the completion of the first two ventilation raises at La Colorada (one of its flagship assets), which will re-open access to the high-grade area of the mine. The company also started processing high grade ore from the COSE mine. Q4 will see a much strong quarter of silver output.

In Q3, the company produced 4.1m oz. Ag and 117k oz. Au, both of which should increase in Q4. AISC from its silver mines were $11.97/oz. but $6.01/oz. per silver oz. sold (net realizable inventory adjustments reduced AISC by $5.96/oz.). AISC from its gold mines were $1,057/oz., which should come down a bit in Q4 as its Timmins Bell Creek mine saw reduced operating capacity as a result of CV19 protocols and adjustments being made to the mining methods. During the quarter, the company repaid $110m on its four-year $500m revolving credit facility. At quarter end, the company has cash and equivalents of $231.6m and $90m drawn on its revolver for total debt of $130m (including $34m of lease liabilities). After quarter end, Pan-American repaid an additional $30m on its credit facility and plans to pay the remaining balance of $60m by year end. The company also increased its quarterly dividend by 40% to $0.07/share.

Pan-American has exceptional optionality and we should hear some key news regarding re-starting its massive Escobal project in 2021 (Ag production of 18-20m oz. p.a. @ $9-$10/oz. AISC). The company will continue to advance its La Colorada skarn project in the new year and ideally make an acquisition, through the use of debt and equity. Silvercrest Metals and its Las Chispas project would make an excellent addition to its portfolio of assets.

Royal Gold: Reported its fiscal year Q1 2021 results. Attributable AuEq production totaled 77k oz., generating operating cash flow of $94m. The company repaid $30m on its revolving credit facility during the quarter, leaving an outstanding balance of $275m and a net cash position of $138m.

Silvercrest Metals: The company continues to expand Las Chispas (with a FS due out before year end), announcing yet another new high-grade discovery. Silvercrest announced the discovery of the El Muerto zone in the northwest part of the Babicanora vein. EL Muerto is the company’s first successful attempt at intercepting high-grade precious metals deeper in the Babicanora area, suggesting potential for a new mineralized horizon in the Babicanora vein. Discovery highlights include:

• 1.4m @ 446 g/t Ag and 6 g/t Au
• 1m @ 720 g/t Ag and 9.46 g/t Au
• 1.5m @ 1,728 g/t Ag and 12.68 g/t Au
• 1.8m @ 239 g/t Ag and 6.39 g/t Au
• 0.60m @ 723 g/t Ag and 12.75 g/t Au
• EL Muerto zone weighted average True width and grade of 389 g/t Ag and 5.27 g/t Au or 784 g/t AgEq.

Silvercorp Metals: The company sold approx. 1.7m oz. Ag and 2.2k oz. Au during the quarter. The company has cash costs and AISC of negative ($2.09/oz.) and $6.99/oz. Silvercorp generated operating cash flow of $29.6m (vs. $26.2m in Q2 2020), which is disappointing given the significant increase in the average realized price of silver during the quarter. The company’s interest in New Pacific Metals is currently valued at $212m. The company has a very robust balance sheet with cash and short-term investments of $221.8m and no debt.

Torex Gold: The company reported a record quarter. Torex now has a net cash position of $77m after generating $138m of operating cash flow in Q3 (We don’t account for changes in working capital as it could results either in inflated or deflated numbers relative to the actual performance). The company produced and sold 131.8k oz. Au and 133k oz. Au at cash costs and AISC of $633/oz. and $877/oz.

Wesdome: The company reported a relatively solid quarter, with Q3 production of 20k oz. Au from the Eagle Complex, a 30% decrease vs. the comparable period in 2019, due to lower grades. The company generated operating and free cash flow of C$25.5m (US$19.22m) and C$3.2m (given the C$13.9m investment in Kiena, its most valuable asset and near-term development project). Cash costs and AISC were $790/oz. and $1,047/oz. Wesdome is ideally positioned to bring Kiena back into production with C$73.5m in cash (US$55.4m), although the asset has significant optionality and could see a significant increase in production relative to the last technical report. Furthermore, it will drive companywide costs down by a large degree.