Gold Seeker Issue #77 ~ This Week in Mining: Earnings Season, Extreme Volatility in Gold & Silver

A wild week in the precious metals markets comes to an end while both gold and silver remain in a downtrend. This week, volumes were light, illustrating how easy it is to move metal prices around during the summer doldrums. The week was highlighted by countless earnings results, which were generally positive, although CV-19 continues to impact various operations by varying degrees.

$ABRA, $AR, $CXB, $CG, $EXK, $FSX, $FSM, $FNV, $GATO, $GCM, $LUG, $OR, $PAAS, $PVG, $RGLD, $SILV, $TFPM, $WDO, $WPM

AbraSilver Resource Corp: The Company announced initial drill results from the Phase II exploration program, extending mineralization well beyond the Oculto zone, which has been the primary area of focus and contains the current resource. All three initial holes of the Phase II program reported broad gold intercepts demonstrating an extension of substantial mineralization for hundreds of meters beyond the Whittle Pit boundary. Drill highlights with intercepts greater than 2,000 gram-meters (interval (m) x grade (g/t)) on a silver equivalent basis include:

• 20.5m @ 24.4 g/t Ag and 2.82 g/t Au (Oxides)
• 53m @ 33.3 g/t Ag and 2.49 g/t Au (Oxides)
  • Including 14m @ 47 g/t Ag and 4.84 g/t Au

Argonaut Gold: The high-cost producer announced record quarterly production of 63.8k oz. AuEq oz. in Q2, which drove revenue to a record $120.2m. Argonaut generated $39.3m in operating cash flow on the back of lower AISC of $1,187/oz. Costs were driven lower by a 48% reduction in cash costs at La Colorada (due to a lower strip ratio, at least in part) vs. Q2 2020, and a 24% decrease in costs at Florida Canyon (costs are projected to trend lower) vs. Q1 2021. Construction of Magino is coming along nicely in addition to having exploration success below and adjacent to the planned open-pit operation, including 7m @ 13.3 g/t and 8m @ 7.7 g/t Au. We believe there is a reasonable probability grades increase at depth, ultimately resulting in a sizeable underground resource with similarities to Alamos Gold’s Island Gold mine. The company remains on track to achieve 2021 guidance of 210-250k AuEq oz. of production at AISC of $1,250-$1,350/oz.

Calibre Mining: Announced additional high-grade drill results from its next major mining spoke, Eastern Borosi. The focus in the first half of the year has been infill drilling to upgrade resource categories. During the second half of the year, the focus will shift toward resource expansion along strike of the Guapinol and Riscos de Oro veins and drilling earlier stage targets. Highlights from this release include:

• 9.7m @ 25.07 g/t Au (Guapinol open-pit)
• 3.1m @ 39.21 g/t Au (Guapinol open-pit)
• 3.9m @ 24.85 g/t Au (Guapinol open-pit)
• 2.2m @ 9.38 g/t Au (Vancouver open-pit)
• 2.3m @ 8.90 g/t Au (Vancouver open-pit)
• 3.2m @ 33.64 g/t Au (Riscos de Oro underground)
• 2.8m @ 11.26 g/t Au (Riscos de Oro underground)

Centerra Gold: Reported Q2 2021 operating and financial results. As a result of the seizure of the Kumtor Mine and the continuing actions by the Kyrgyz Republic, the company has recognized a loss on the change of control and included the Kumtor Mine in discontinued operations. The company's results from continuing operations include the Mount Milligan Mine, the Öksüt Mine, and the Molybdenum Business Unit. The company generated $60.3m in operating cash flow and $30.7m in free cash flow from continuing operations and $77.1m and $49.7m inclusive of a partial quarter from Kumtor. Centerra does have recourse through international arbitration, but that could take some time. The company's cash position stood at $883m with total liquidity of $1.283b. Production from continuing operations totaled 69.85k oz. Au and $19.8m lbs. Cu. Cash costs and AISC from continuing operations were $539/oz. Au and $1.41/lb. Cu and $676/oz. and $851/oz. The company also updated three-year guidance inclusive of 2021:

• 2021 Gold & Copper Production: 270-310k oz. Au and 70-80m lbs. Cu
• 2022 Gold & Copper Production: 380-430k oz. Au and 90-100m lbs. Cu
• 2023 Gold & Copper Production: 380-430k oz. Au and 70-80m lbs. Cu
• 2021 Cash Costs & AISC: (net of copper byproducts): $625-$675/oz. & $750-$850/oz.
• 2022 Cash Costs & AISC: (net of copper byproducts): $550-$600/oz. & $450-$500/oz.
• 2023 Cash Costs & AISC: (net of copper byproducts): $575-$625/oz. & $525-$550/oz.

It wouldn’t be the least surprising to now see Centerra make an acquisition of a moderately sized to large development asset or company to propel the company back into the ranks of a large mid-tier gold producer. The Kyrgyz Republic's government is corrupt, but it might bend to international laws, rules, and regulations.

Endeavour Silver: Reported Q2 2021 financial results. The company now operated two mines in Mexico, Guanacevi and Bolanitos, as Endeavour plans to suspend operations at El Compas due to the depletion of reserves. This is insignificant as El Compas only accounted for approx. 5% of 2021 production. While cash flow is materially higher than Q2 2020 (when operations were suspended for approx. six months), costs were very elevated. In Q2, the company produced 1.073m oz. Ag and 11.16k oz. Au at cash costs and AISC of $13.03/oz. Ag and $25.39/oz. Ag. Operating costs were higher than budgeted due to global supply chain constraints creating inflationary pressures, increased labor costs, a strengthening Mexican Peso, and increased operating development at Guanacevi. This led to rather pathetic cash flow generation of $6.7m, but the company retains a strong cash position to develop Terronera in approx. four-to-six months, although a debt facility is likely needed.

Fosterville South: The Company announced initial drill results at its Reedy Creek goldfield within its Providence Project in Victoria. The ongoing drill program is the first modern exploration conducted in the Reedy Creek goldfield. The drill program has been underway for the past three weeks, commencing after the team negotiated and signed seven separate access agreements. The initial 25 drill-hole program will total 2,250m and focuses on two ridge targets with extensive geochemical anomalies established by Fosterville South fieldwork and various historic workings. The highlight intercept in this release: 11m @ 31.34 g/t Au, including 4m @ 80 g/t Au.

Fortuna Silver: Reported Q2 results, which excludes any contributions from the Roxgold acquisition as the transaction closed two days following quarter-end. In Q2, silver and gold production totaled 1.9m oz. Ag and 31k oz. Au @ AISC of $14.20/AgEq oz. (Caylloma & San Jose) and AISC per ounce of gold sold (Lindero) of $1,214/oz. Fortuna generated net income of $16.1m, operating and free cash flow of $29.5m and $18.5m.

The quarter, namely Lindero, was negatively impacted by a surge in CV-19 cases during the quarter, limiting onsite access to foreign vendor support, affecting ramp-up operations. In addition, 163 personnel tested positive for CV-19, further impacting operations as Fortuna suspended operations for 16-days, resulting in lower production and higher costs. Nevertheless, Q3 should be a much better quarter despite lower metal prices due to higher output from Lindero and a full quarter of contributions from Yaramoko (approx. +30k oz/quarter). Fortuna is one of the better values amongst its emerging mid-tier peers due to the ramp-up of Lindero, adding the producing Yaramoko mine via the Roxgold acquisition (which also added a solid pipeline of excellent development assets, one of which is slated to reach first production in Q1 2023). 

Franco-Nevada: The largest royalty and streaming company by market capitalization report record Q2 and 1H 2021 results. In Q2, the company benefited from the first Vale royalty debenture contribution. In Q2, the company sold 166.85k AuEq oz. (56.2% Au, 13% Ag, 6.3% PGM, and 10.9% from other mining assets) and higher revenue from its energy royalties, generating $245m in operating cash flow. Franco is debt-free with $1.4B in available liquidity ($1.2m credit facility and $198m in cash and equivalents). The company is projecting 25% revenue growth over the next 5yrs. Franco increased 2021 guidance to 590-615k AuEq oz. and revenue from its energy assets of $155-$170m.

Gatos Silver: The newest mid-tier silver producer announced record Q2 2021 operating and financial results. The JV group (70% Gatos) produced a record 2.1m oz. Ag during the quarter and record levels of lead and zinc production based on record throughput and recovery rates. AISC was $12.63/oz. Ag. During the quarter, record throughput was achieved at 2,535tpd, a 13% increase above Q1 and above design capacity. Gatos also started exploration at the Esther deposit to further define and expand resources as part of three active exploration drill programs in the Los Gatos district. After quarter-end, Gatos significantly improved its financial position by retiring the term loan of $155.9m attributable to the company. At quarter-end, the company's cash position stood at $29.6m. Q2 was likely the low watermark in quarterly AISC for 2021 due to ongoing capital and exploration programs.

Gran Colombia Gold: The Company announced Q2 and 1H financial results. The company produced 52.2k oz. Au from its Segovia operation in Q2 at cash costs and AISC of $767/oz. and $1,110/oz. The company generated $12.8m in operating cash flow; however, Q2 of every year has the heaviest impact from income tax payments which totaled $49.3m. Q2 was transformational for the company as it completed the acquisition of Gold X Mining for its excellent development asset, Toroparu in Guyana. Gran Colombia also closed a $300m offering on August 9 (6.875% senior unsecured notes due 2026) to fund the development of Toroparu. The company is nearing the completion of an updated PEA, which incorporates the recently announced high-grade results from the 2020-2021 drill program undertaken by Gold X. 

Lundin Gold: The Company posted records across the board in Q2. In Q2, the company sold 125.4k oz. Au @ record low-cash costs and AISC of $596/oz. and $720/oz. Lundin gold generated a whopping $142m in operating cash flow, ending the quarter with a cash balance of $192.2m. Underground mine development also continued as planned, with a total of 2,360m of development completed, with development rates averaging 25.9/day in the second quarter. The mill processed 346,561 tons of ore at an average throughput of 3,808tpd at an average grade of 11.1 g/t Au. Given its scale, cost structure, and production profile, Lundin should quickly deleverage ($772m in LT debt). The 4,200tpd expansion project continues on schedule and on budget, with significant progress made on structural works in the flotation and concentrate filter areas. The first additional underground haul truck was also delivered and is in use. Completion is expected in the fourth quarter of 2021.

Osisko Gold Royalties: The high-growth royalty and streaming Company generated $37.3m (a record) in operating cash flow in Q2 2021, selling 20.18k AuEq oz. This missed expectations marginally due to lower production from its large Eagle royalty, with production from the assets set to increase substantially in the 2H of the year. The company also increased its quarterly dividend by 10% to $0.055/share. In addition, Osisko added financial flexibility as it amended its revolving credit facility, increasing the amount available by $150m to $550m, with an additional uncommitted accordion of up to $100m ($650m available).

Could the company be gearing up for a large royalty or streaming transaction? We hope so, but only time will tell, but it isn't necessary with significant embedded growth from its existing portfolio. Production should pick up marginally in the 2H but really see a step-up in 2022 as San Antonio comes online, Eagle fully ramped up, a full year of production from Bonanza Ledge II, significant growth from Mantos (expansion expected to be completed in Q4/Q1 2022), and recommencement of diamond deliveries from Renard. While the company does have a fair amount of debt ($402m), it also has a strong cash position ($258m) and a 75% interest ($698m at June 30, 2021) in Osisko Development (the company's financials are comingled with that of Osisko Development, which is something to note when looking at Osisko GR's financials).

Lastly, Osisko Gold Royalties, earlier in the year (April), entered into a strategic partnership with Carbon Streaming Corp, giving them a small equity stake and the option to purchase 20% of every streaming agreement. Carbon Streaming Corp has already completed two streaming transactions. Osisko GR envisions exercising its option (it still has plenty of time), which could augment growth, perhaps materially over the medium and long-term (depending on deal flow). Still, we will have to wait to see how everything plays out.

Pan-American Silver: Reported Q2 2021 financial results. It is worth noting that silver production will be lower through 2021 due to issues being addressed at La Colorada. The company also increased its quarterly dividend to $0.10/share. Q2 silver production totaled 4.5m oz., which again was impacted by ventilation constraints at La Colorada. In July 2021, the company successfully cleared the blockage formed during the Q1 2021 commissioning of the surface to 345-meter level primary ventilation raise, which relieves the ventilation-driven constraints that have impacted development and mining rates at La Colorada. Mine development is now underway to enable throughput rates to increase and mine sequencing into higher grades, with production anticipated to rise through the remainder of 2021.

Q2 2021 silver production was also impacted by the expected transition in mine sequencing into higher gold grades and lower silver grades and the timing of leach kinetics and heap sequencing at Dolores and COVID-19 related protocols limiting workforce deployment levels. The company is maintaining its 2021 silver production forecast for 2021 of 20.5-22m oz. Pan-American also produced 142k oz. Au during the quarter. A buildup of 23.8k oz. Au of in-heap inventory occurred at Dolores and Shahuindo, which will be recognized in the 2H 2021. Gold production guidance for 2021 is maintained at 605-655k oz.

Silver segment cash costs and AISC were $12.71/oz and $16.36/oz. Cash costs rose due to lower gold byproduct credits as Dolores was recategorized as a gold asset. Silver Segment AISC included $4.19 per ounce of sustaining capital, impacted by spending on the critical ventilation work at La Colorada. Additionally, both Cash Costs and AISC were impacted by costs associated with COVID-19 protocols and inflationary pressures on energy, wages, and consumables. Gold segment cash costs and AISC were $857/oz. and $1,163/oz. Cash Costs were negatively impacted by geotechnical conditions at Bell Creek, preventing access to higher grade zones and increased waste mining rates at Shahuindo. Pan-American generated $124m in operating cash flow during the quarter, but this is expected to increase through the remainder of the year as (silver) production increases and costs fall (silver and gold).

Pretium Resources: Reported Q2 financial results. The company produced 83k oz. Au during the quarter at AISC of $1,100/oz. (within guidance). The company remains on track to achieve 2021 production and cost guidance of 325-365k oz. Au @ AISC of $1,060-$1,190/oz. Pretium generated free cash flow of $50.7m In Q2, building its cash and equivalents such that the company now has a net cash position. On August 9, the company refinanced its loan facility consisting of a $100m non-revolving term facility and a $250m revolving credit facility.

Royal Gold: Reported results for its fiscal year Q4 and fiscal year 2021 results. The company posted record financial results of $121m of operating cash flow in Q4 and $407m for its fiscal year. 74% of total revenue was derived from gold, 10% from silver, and 16% from other minerals. During its fiscal Q4, the company acquired a royalty on the Cote Gold development projects, announced a stream on the NX Gold mine, and after quarter-end acquired a royalty on the Red Chris mine in Red Lake. Further, the company increased its 80% silver stream on Khoemacau mine to 84%, which recently saw its first production from concentrate. This will be the company's primary growth driver over the next year, absent any further deals, as well as the recent acquisition of a 25% gold stream on Ero Gold Corp's NX Gold mine, which is projected to produce 34.5-37.5k oz. Au in 2021.

 The company has no debt at quarter-end and a cash position of $222m, with available liquidity of $1.2b. This is before the royalty acquisition on the producing Red Chris mine. The BOD approved Royal Gold's fiscal year-end change from June 30 to December 31, effective beginning year-end 2021. To complete the change, Royal Gold will use a six-month transition period from July 1, 2021, to December 31, 2021. The change of the company's fiscal year is intended to align $RGLD's reporting and disclosure with its peer group and the precious metals sector in general. 

SilverCrest Metals: Provided a construction update for its Las Chispas project. Construction is tracking on schedule, with construction 33% complete relative to scheduled completion of 28%. Construction has progressed well with the confined COVID-19 camp facility and earthworks completed, concrete foundation work 74% complete, plant tank construction and key infrastructure projects (powerline, road, and bridge) commenced, underground infrastructure ongoing, and plant detailed engineering 90% complete. Construction progress has benefited from no delays due to COVID-19 or any other reason.

In the 1H of the year, 60% of the $138m in initial capital cost estimate is committed, 35% of which has been spent across all capital cost categories, in line with budget. A significant component of the initial capital cost is the process plant which is a fixed price Engineering, Procurement, and Construction (EPC) contract with Ausenco Engineering Canada Inc. This contract represents approximately 39% of the initial capital cost estimate in the Feasibility Study, limiting the risk of cost inflation for the process plant. Underground development is well advanced, with 4.6km's of development completed in the 1H, 2021 for a total of 13.1km since development began in Q1, 2019. Access has been established in four veins and 33 in-vein work fronts. The combination of higher productivity, favorable ground conditions, and cost control have contributed to development costs tracking slightly under budget. Overall, development meters were ahead of budget in H1, 2021.

Optimization work is ongoing, including reviewing the FS life of mine plan (LOM) to assess areas where improvements can be made. This has included developing an exploration drift to the high-grade Babi Vista Splay Vein to better understand this opportunity, which is currently not part of the LOM plan. As planned, work is underway to validate metallurgical results from all underground exposed veins, well in advance of plant commissioning in late Q2, 2022. Shortly after commercial production is achieved, the company can assess the optimal throughput capacity, which will almost assuredly be more than the base case 1.25ktpd operation currently envisioned. SilverCrest Metals remains exceptionally well-capitalized. As of July 31, 2021, the company has cash and equivalents of $188m and $90m available under its $120m project financing facility.

Triple Flag: The newest mid-tier royalty and streaming company posted record cash flow for its inaugural public quarterly results and provided a 5yr and 10yr outlook. Triple Flag also declared its first dividend of $0.0475/share, equating to a 1.70% dividend yield. The company sold a record 22.53k AuEq oz. in Q2, generating operating cash flow of $32.8m. Following its IPO on May 26, the company is debt-free and has an available credit facility of $500m with an additional $100m accordion. Over the next five and ten years, average annual attributable AuEq production is forecast to average 105k oz. Growth will be driven by royalties and streams on Buriticá, Pumpkin Hollow, Gunnison, Dargues, and ATO. In addition, the company could see additional growth through a number of assets in its portfolio currently excluded from guidance, as well as consummating additional royalty and streaming deals.

Wesdome: The Canada-focused mining company posted strong Q2 results and achieved an important milestone. The company produced 30.37k oz. Au @ cash costs of $663/oz. and AISC of $1,009/oz., generating operating cash flow of $26.9m. During the quarter, the company successfully restarted operations at Kiena, and since July 12, the mill has been processing ore. Work is underway to prepare the A zone for its first production stope commencing in August.

Wheaton Precious Metals: The largest streaming company by production reported record revenue, cash flow, and sales volume through the 1H 2021. In Q2, the company generated revenue of $330m and $216m in operating cash flow on the sale of 90k oz. Au, 5.6m oz. Ag, 3.87k oz. Pd, and 394k lbs. Co. The company is in ideal financial shape to consummate additional deals with approx. $235m of cash on hand and a fully undrawn $2b revolving credit facility (which was recently extended by an additional year, now maturing on June 9, 2026).

After quarter-end, Wheaton signed a non-binding term sheet with Rio2 to enter into a precious metals purchase agreement on the Company's Fenix Gold Project in Chile. Wheaton will remit $50m in two tranches (closing and after the receipt of its EIA) in exchange for a 6% gold stream (with an ongoing per unit purchase price equal to 18% of the spot price, until $WPM has recouped its initial investment, increasing to 22% after that) until 90k oz. Au has been delivered and a 4% gold stream until 140k oz. Au has been delivered, after which the stream drops to 3.50%. There is significant upside potential at the Fenix Gold project as it has a resource base of 5m oz. Au (a technical report in 2012/2013 envisioned production three times higher). There are a number of growth drivers for the company in the near and medium-term, including the Salobo Phase III expansion (2H 2022), ramp-up at Keno Hill (2022), and materially higher gold production from Constancia's Pampacancha deposit (2H 2021). There are also a host of new streams set to come online in 2023/2024.