Argonaut Gold Inc.
Q4 2020 Earnings Call Transcript

Published: 26 Feb 2021

[Operator:]

Good morning. My name is Mariama and I will be your conference operator today. At this time, I would like to welcome everyone to Argonaut Q4 and Year-End 2020 Financial Results Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Mr. Doherty, you may begin your conference.

[Peter Dougherty:]

Thank you, Mariama and welcome everyone to Argonaut's Q4 and 2020 financial and operating results conference call and webcast. I want to thank everyone for taking the time this morning to join the call today. 2020 was a transformational year for Argonaut, we've set the company up nicely to transition from a high cost, short mine lives, junior producer to a lower cost, intermediate producer with longer mine lives, and are on the cusp of this with the financing and construction activities beginning this quarter at our Magino project. This morning, we will discuss the Q4 and 2020 year-end results, and also walk through our strategy and plan, specifically with our future flagship asset Magino since we've recently commenced site preparation work or construction.

[David Ponczoch:]

Thanks, Pete. Please turn to Slide 5. In terms of financial performance, record fourth quarter gold equivalent ounces production lead to record quarterly revenue of over $100 million, and record quarterly cash flow from operating activities nearly $40 million. Even with $35 million invested capital and $22 million in debt repayments during Q4, we still ended the year with $214 million in cash, which puts us at extremely strong balance sheet position as we commence Magino's construction.

[Peter Dougherty:]

Thank you, Dave. Can we all please turn to Slide Number-7, Operations Overview. We achieved record quarterly gold equivalent ounce production in the fourth quarter of nearly 57,000 ounces produced, which is up 20% year-over-year. We saw meaningful reduction in cash costs at all of our Mexican operations. You'll remember that one of our stated goals for 2020 was to focus on reducing our cost per ton of ore processed at all of our Mexican operations and I'm happy to report that we achieved this in spades. On a cost per ton process basis, the El Castillo mine experienced a 34% reduction in costs. The San Augustin mine experienced a 10% reduction , a 4% reduction when compared to 2019. This year, reducing the cost per ton of ore processed at the Florida Canyon operation is a key priority for us. Please turn to the next slide. Slide number 8, 2020 and Recent CSR Highlights. In 2020, our team did an excellent job from a corporate-social responsibility perspective as well. We earned the environmentally socially responsible company designation from the Mexican government at all of our Mexican operations for the ninth consecutive year. This means, in general, that the Mexican government recognizes Argonaut is a company that is operating in an environmentally and socially responsible manner year in and year out. At our La Colorado operation, we were recognized again as a leader in social responsibility by the Sonoran Mining Cluster. And I want to recognize and thank our team for the outstanding work this past year in assisting the Mexican government with outlining protocols and procedures in response to the COVID-19 pandemic. You'll remember that during 2020, the Mexican government issued a decree that all non-essential businesses, including mining, must cease operations for a period of two months. I believe our team's response greatly assisted in mining being recognized as an essential business, with operations restarting with strict protocols in place only two months later. And these protocols are working as evidenced to the very few COVID infections to-date within our workforce in Mexico. And I'm happy to report today that if we look at the organization in Mexico, we have no active cases of COVID-19 in our nearly 2,000 employees and contractors working at our mine sites.

[Operator:]

Thank you. Your first question comes from Gabriel Gonzalez with Echelon Capital Markets. Your line is open.

[Gabriel Gonzalez:]

Good morning. Thank you very much and congratulations to the company for a really transformational 2020. Really, the outlook for the company is changing at an amazing fashion. My question is just on the cash costs for Florida Canyon in 2021. And I'm referencing the 2021 Gold equivalent production cost guidance. I was just wondering, between that 1,200 to 1,300 per ounce guidance, is there a little bit more granularity that you could give us in respect to what we could expect in the first half versus the second half? Thank you.

[Peter Dougherty:]

Okay. Gabriel, thank you for recognizing the change to the teams. They're really done a fantastic job. And I would expect that as we look first half versus second half, from our perspective, we think that costs will be higher here in the first half than they will in the second. As we talked about before, one of the key focuses is going to be getting this overland conveying and stacking system in. And we think that should help reduce the cost significantly and allow us to ramp up additionally further in the production profile. So it's really the first half is going to be higher costs than we would see in the second half as we start to ramp up more in the second half of the year.

[Gabriel Gonzalez:]

Thank you. So, should we assume just given the slowdown in the Biden's administration's take up of BLM permitting, just to be conservative then, is it fair to say or to expect that the overland conveying and crushing improvements, again, just to be conservative, should be completed by the end of the second quarter? Thereabouts at the end of the second quarter?

[Peter Dougherty:]

Our expectation -- we've already gone out and started the work with the contractors in building the equipment that will be needed to put this overland conveying and stacking system in. That's already underway. Right now if that equipment were on site, we could not start construction as we are waiting for that air quality permit. We believe that this project is one of those ones that even though we've had a change in the administration, this is one of those projects that really stands out because it really speaks to what we're trying to achieve and what the country is trying to achieve. We think from our perspective on this project that our carbon footprint will drive down significantly as we put this overland conveying and stacking system in, won't need to run trucks and dozers and all the other pieces of equipment that would be burning diesel fuel as we switch to national grid power running out there and running this overland stacking. And that really resonates with people. So now you have a green initiative type project that really resonates with this administration and what we're trying to accomplish as well. So we think that that really bodes well for us and we think that there's a good opportunity to be starting this in the second half of the year.

[Gabriel Gonzalez:]

Great. Thank you very much. And just one very last quick question, I hope. Assuming the Cerro del Gallo permits are received in this first half, just to refresh us, about when would you be looking at a potential construction decision for the project?

[Peter Dougherty:]

Yes. That's a fantastic question, Gabriel, because it does -- again, Cerro del Gallo represents one of those pillars of strength for the company, as we look to building out the future transforming of this company. From our perspective, I think it's important to understand that if we have the permit today, we would not be doing anything as said, because our first and primary focus today is on the Magino Project. Should things start to ramp up and we're starting to hit our milestone, we feel very comfortable with how Magino is going, and should the cash flow in the company continue to come in and bolster the overall balance sheet of the company, remember with that purely flexible revolving credit facility on hand, we could potentially take on the Cerro del Gallo project, because our construction team for Cerro del Gallo would be freed up in the second half of this year. So if things are running well, and at the operations at Magino, then I believe we could be taking on a decision here in the second half of this year around the Cerro del Gallo project in timing to bring that online and then is the construction team is not stretched.

[Gabriel Gonzalez:]

Wonderful. Thank you very much.

[Peter Dougherty:]

Okay, thank you, Gabriel.

[Operator:]

Your next question comes from Eric Winmill with Scotiabank. Your line is open.

[Eric Winmill:]

Oh, perfect. Thanks very much. Good morning, everyone. Just two quick questions for me. Just wondering if you can give any further detail on some of the activities underway of Magino. And some of the critical path items or long lead time items there. And secondly, just on Standard mine, if you have any more detail on the plans for exploration or what you'd look at in terms of economic threshold for that project? Appreciate it. Thanks.

[Peter Dougherty:]

Okay, Eric, well, thank you for taking the time this morning to join us. Let's talk about Magino in high level. We're still in the middle of winter up in Dubreuilville. The activities that are taking place right now are the logging as we have to remove the stumpage in order to build the facilities up there. So that is underway right now. And then some snow removal and early road pioneering in so we can get to work. The real dirt work really kicks off in the March timeframe, that's when we'll be stepping up those activities. We've hired in a group called Tigersome that if you're in Canada, you may know, they do a fair bit of dirt work and they've already mobilized and are working strongly at the project along with the logging company. So those activities are underway. The beginning of the camp to go into the project is already kicked off with the local group. Actually, the namesake of Dubreuilville and some of the first nation groups there are working on the camp to get that up and going as well. So early days, early things are kicked off. Now, when it comes to the long lead equipment, I think this is key that we have chosen a talented group like Ausenco. They have already placed all the orders for the mills and all the running gear, the major long lead gear items for the project and that has already been placed. That was placed back in December, so that is well on its way and they are just finalizing their teams and getting ready to start as they will be heading up to Magino in earnest here, in the March-April timeframe. We secured a large office building that used to belong to the logging operation in Dubreuilville, where they will be taking over and running things from there as well. So it's early days, but a lot of work has already been assigned. Most of the major contracts have already been signed up and we're just starting to get going. But excited about how that that looks forward. So that tells you about where we are with the Magino project. And your second part of your question was around what are we doing with the Standard gold mine? Well, the Standard was a mine that was operated back in the Pegasus and Apollo gold base and when they started work on this project, they had run this project as a satellite operation producing roughly 600,000 ounces out of the pit. We know today from the past history and the work that we have that there's roughly around 140,000 ounces already identified at the project. We are going to kick off our drilling program here of about 40,000 feet. That will kick off at Standard during the April timeframe. Right now, we are drilling at the Florida Canyon operation, as we talked about earlier, trying to connect those pits together. So in April, we'll kick off some drilling down that Standard. We believe that we'll finish up by the June timeframe and then we'll come back in and do some more work at Florida Canyon, and then rotate potentially back to Standard in the fourth quarter. So that's what we have planned for the Standard gold mine and where we are right now. Our threshold as a company, I would like to see at least 400,000 ounces identified before we look at kicking this back on. That would yield somewhere around a 50,000 ounce type year producer out of that line. And we think that would be a good size for that size property. But again, the future will tell us the drilling is going to start here in April and we'll see where that takes us the future. Does that cover everything you're looking for Eric?

[Eric Winmill:]

Yes, that's really helpful. Appreciate it. Sounds like a lot is going on. So look forward to hearing your updates. Thanks a lot, everyone.

[Peter Dougherty:]

Okay, great. Yes, it is a it is an exciting time and the teams are stepping up and taking the lead in all these areas. And I couldn't be more pleased with their efforts.

[Eric Winmill:]

Great, thanks.

[Operator:]

There are no further questions at this time. I will now turn the call back to the presenters.

[Peter Dougherty:]

Thank you, Mariama, and thank all of you who have joined us this morning. I have told our team that in 2020, we learned how to walk and that in 2021 we'll learn how to step that up a little bit more, as we have many exciting fronts that we're working towards. This is truly an exciting time to be part of what's happening here in Argonaut and we look forward to talking to you more about things as we continue to advance the company and its various projects. Thank you again for your time this morning and have a great day. Bye now.

[Operator:]

This concludes the conference call for today. Thank you, everyone. You may now disconnect.