VANCOUVER — As many gold producers are plagued by rising operating costs and shrinking profit margins, Reno-based producer Argonaut Gold (AR-T) has proven to be an exception to the norm. Though the company boosted year-on-year gold production by 50% — and exceeded its guidance in 2012 — the big story is that Argonaut was able to accomplish its growth targets while simultaneously dropping its cash costs per ounce.
In 2012 Argonaut's production jumped to 108,000 oz of gold at average costs of US$597 per oz, which exceeded guidance figures of roughly 95,000 oz at costs of between US$625 and US$650 per oz. Average realized prices on gold sales were also on the rise, jumping around US$14 per oz to US$1,698, which resulted in a strong financial year for the company.
Argonaut recorded yearly revenue of US$187 million, and net income totalling US$64.9 million, which equates to roughly US16¢ per share after adjusting for stock-based compensation and other non-cash items. The company finished the year with US$191 million in cash while completing a US$341-million deal for Prodigy Gold's Magino gold project in Ontario, and kick-starting production at a second mine at its La Colorada gold-silver project in Sonora State, Mexico.
“I think as you look to this company the most important factor is the constant reliance and need to reduce our operating costs and extend our production profile, and that continued to play forward last year,” commented president and CEO Peter Dougherty during a conference call. “We were able to exceed our production guidance and still achieve those lower average costs. You can sum that up by saying we've had a very successful year.”
In late February Argonaut revealed its updated guidance estimates for 2013, which includes a strong second half push from La Colorada. The company expects to produce between 120,000 oz and 140,000 oz of gold this year at cash costs between US$630 and US$660 per oz. La Colorada will contribute roughly 40,000 oz of gold at between US$450 to US$475 per oz.
"Fresh ore mining has begun at La Colorada," Dougherty added. "The mine plan anticipates grades to increase quarter over quarter with production loaded towards the second half of the year. Installation of the new crusher and pad construction will be completed in the second quarter of this year."
Argonaut is undertaking an extensive capital program in 2013 in order to continue to streamline its operations. The company will spend US$32 million at its flagship El Castillo gold mine in Durango State, Mexico, including US$15 million to expand throughput capacity and US$7 million on a new crushing and overland conveying system. An additional US$14 million will be invested in a La Colorada, with US$7 million going towards an upgraded crusher system.
“This year is all about expansion,” Dougherty continued. “We plan on building out several areas of production at La Colorada and El Castillo. We are looking to reduce operating costs by reducing the haulage profiles at El Castillo, and we'll be expanding into the planned operating areas at La Colorada.”
Argonaut is also aiming to complete an updated preliminary economic assessment on the recently acquired Magino project later this year, which will incorporate 89,000 metres of drilling completed in 2012 and include the newly discovered PD Zone in the southeast corner of the main pit. Work will continue at the company's San Antonio project on the Baja California Peninsula despite ongoing permit delays, though Dougherty stated that the project remains on track for production by late 2014.
“The company was formed three years ago with a single purpose: creating value. As a gold equity we felt the need to provide leverage, and we do with a large resource base,” he continued, pointing out that Argonaut's global measured and indicated resources are now in excess of 12 million oz contained gold.
Shares of Argonaut have jumped on the back of rising gold prices over the past four weeks — rising roughly 10% or 77¢ since late February — though remain well off a 52-week [high] of $11.08. The company traded 985,000 shares en route to an $8.48 daily close following its annual report on March 26. Argonaut maintains 93 million shares outstanding at the time of writing for a $791 million press time market capitalization.
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