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Gold Seeker Report: This Week in Mining Issue #25: Earnings Season in Full Swing

Gold and silver prices surged again this week, although both metals were hit on Friday. The disconnect between the valuation of mining equities relative to the underlying commodity price has been expanding. We are overdue for correction and/or a period of consolidation but it remains to be seen when that will be. It certainly feels like it has begun or is just around the corner. Q2 earnings announcements have started to accelerate with most companies impacted from the CV19 protocols and mandated mining suspensions. However, Q3 earnings are on track to be significantly better with a full quarter of production (hopefully) at higher average gold and especially silver prices.

There were more financing's this week although nothing compared to the last two weeks. These include:

AbraPlata: Announced a $15m private placement (PP), led by Eric Sprott to accelerate growth. This was subsequently increased to $18m.

Bunker Hill Mining: Announced an increase to the previously announced brokered (PP) by 50% to $15m.

Chesapeake Gold: Announced a $20m PP. After completion, Eric Sprott will own and control approx. 16.40% of the issued and outstanding common shares. Metates is a massive project with gold and silver reserves of 18m oz. and 500m oz. and favorable economics.

Deep-South Resources: Announced a $1m non-brokered PP.

Ethos Gold: Announced an additional $2.1m financing.

Hemlo Gold: Arranging PP of $3m. This was subsequently increased to $3.5m

Impact Silver: Announced an upsizing to the previously announced PP to $7m.

Lion One Metals: Amended the previously announced PP. Per the agreement, a syndicate of underwriters, have agreed, on a bought deal PP basis (I) 11.765m units @ $1.70/unit (Tranche 1 units) for proceeds of $20m and (II) 7.318m units @ $2.05 per tranche 2 unit for proceeds of $15m, for a total of $35m. Each tranche 1 unit will consist of one common share and ½ of one warrant with an exercise price of $2.35/share for a period of 12 months. Each tranche 2 unit will consist of one common share and ½ of one warrant. Each full tranche 2 warrant can be exercised to acquire common stock at $2.75/share for a period of 12 months.

Novo Resources: Announced an upsizing to the previous announced PP to $42.5m and concurrent non-brokered PP of $3m. The net proceeds from the increased financing will be used to fund the acquisition (discussed later) and capital expenditures.

Nubian Resources: Announced a $4.2m investment by Eric Sprott.

NV Gold: Announced PP of up to $3m.

Redstar Gold: Announced a $7m non-brokered PP.

$AQA.TO, $BTG, $CXB.TO, $EXK, $AG, $FNV, $GBR.V, $GPL, $HL, $IAG, $JAG.TO, $NVO.V, $OR, $PAAS, $PVG, $RGLD, $SVM, $TGZ.TO, $TXG.TO

Aquila Resources: Announced a positive preliminary economic assessment (PEA) for its Back Forty Project. The PEA builds on the 2018 open-pit feasibility study and includes the known underground mineral resources. For initial capital costs of $250m, Back Forty would produce an average of 110 AuEq oz. over an initial 12yr mine life. Using a $2k oz. gold price deck and $25/oz. silver, the project would yield an NPV6 and IRR of $316m and 37.8%. The project holds up well even if gold and silver prices drop to $1,450 and $18.20/oz., which yields an NPV6 and IRR of $176m and 26.1%. There are a number of things which could enhance the economics such as increasing gold recovery rates, the use of contract mining, and resource expansion.

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B2Gold: Like most West African producers in Q2, operations were largely uninterrupted. While not all of B2’s production is sourced from West Africa, a great deal is from its cornerstone asset, Fekola, which is in Mali. Company-wide Q2 production totaled 239k oz Au from the company’s three operating mines, which was 3% above budget and a 15% increase over Q2 2019 (excluding operations sold to Calibre). Inclusive of attributable production from Calibre, production totaled 241.6k oz. Au as Calibre suspended mining operations for most of the quarter.

The company reported record revenue and operating cash flow primarily due to a higher gold price, with revenue of $442m in Q2 and operating cash flow of $238m (a big jump from Q2 2019 when cash flow was $145m lower). Cash costs and AISC remained low and below budget at $385/oz. and $714/oz. FY 2020 guidance remains between 1m-1.055m oz. Au. B2Gold’s balance sheet is strong with $628m in cash and debt of $471m. As a result of this performance and the higher gold price environment, the company increased its quarterly dividend to $0.04/share, which is a 100% increase from the previous quarter.  

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Calibre Mining: Resumed blasting and mining activities at its Jabali underground mine, which is part of the Libertad complex. Jabali is a key source of long-term, high-grade ore for the Libertad mill and a focus of its expanded drilling program. Illegal artisanal mining caused ground stability issues which caused households to relocate.

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Endeavour Silver: The company has started to turn around its operations and with higher silver prices in Q3, it should generate material cash flow. Q2 was weak even though costs at its mines fell. The weakness is largely attributable to the mandated mine suspensions in Mexico. Company-wide cash costs and AISC were $2.78/oz. Ag and $14.91/oz. AISC fell but still remains elevated at Bolanitos due to increased capital investment, which is necessary to turn the operation around. Guanacevi continued to outperform.

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First Majestic Silver: Announced Q2 2020 results, which were weak as a result of mine suspensions for almost two out of three months during the quarter. The company was smart and held back 970k oz. Ag and 6k oz. Au as prices of both metals have been rising since end Q2. Costs were kept under control considering lower output and standby costs. All-in sustaining costs (AISC) were $18.57/oz. (a 26% increase). The company ended the quarter with $95.2m in cash and equivalents. As of August 4th 2020, the company held $128m in cash and equivalents. With higher silver prices, the company is now looking at potentially restarting some of its suspended mining operations.

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Franco-Nevada: The largest streaming and royalty company by market cap (and second by attributable production), saw 15 of its 56 cash generating mining assets impacted by CV19 and related suspensions/ production curtailments. In Q2 2020, Franco sold 104k AuEq attributable oz., generating $195m in revenue and $158m in operating cash flow. 70% of Q2 revenue was derived from gold. 10.3% for silver, 11% PGM’s and 1.20% from other mining assets and 7.50% from energy. Attributable AuEq oz. sold saw a 3.20% decrease relative to Q2 2019, although this doesn’t illustrate the full impact of Franco’s production shortfall as Cobre-Panama has ramped-up since then and is Franco’s largest and most valuable asset.

Lower contributions from Antapaccay, Goldstrike and Sabodala were partially offset by higher contributions from Cobre-Panama (relative to Q2 2019) and Hemlo. The full impact of mining suspensions, notably at Cobre-Panama is only partially reflected in the Q2 numbers and will carry over to the Q3 numbers. This is because of the drawdown on oz. produced but not yet delivered, which will build back up in Q3 but not show up in the bottom line until Q4, for the most part. This is the same at several of its assets where gold and/or silver is produced from copper or lead/zinc concentrates.

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Great Bear Resources: More results from the on-going drill program were released. Two new drill sections were completed within an undrilled 140m long segment of the LP fault. The two sections were highlighted by significant thickness of very shallow high-grade starting at surface with 10.50m @ 81.22 g/t Au.

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Great Panther: Reported Q2 operating and financial results. It’s looking like the company is turning around its flagship asset, Tucano, as it had record quarterly production at much lower costs. Great Panther saw revenue increase 48% over the comparable period in 2019 and generated record cash flow from operations of $19.5m. AISC was $1,126/oz., a far cry from Q1 AISC, which was upwards of $1,750/oz. If the company can keep AISC below or around $1,000/oz. at Tucano in Q3, the company should see a significant increase in cash flow, boosted further by its silver operations in Mexico, which are now profitable. 

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Hecla Mining: The company announced a 24% increase in revenue on the back of higher production and metal prices in Q2. Hecla’s operations were mostly uninterrupted although its largest cash flowing asset, Casa Berardi, was shutdown for less than a month. Hecla saw silver and gold production of 3.4m oz. and 60k oz. in Q2. Hecla generated $37.5m in operating cash flow and $26.7m in free cash flow during the quarter. Hecla is in far better financial shape than it was in Q4 2019/Q1 2020 with $76m of cash on hand, the repayment of $160m on its revolving credit facility, with $50m outstanding, which is expected to paid by year end. Hecla will see a big increase in cash flow in Q3 with higher gold prices and substantially higher silver prices.

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IAMGOLD: The higher cost producer reported solid operating and financial results in Q2. The company produced 155k oz. Au and generated $79m in operating cash flow. This was despite the suspension of mining activities at Westwood and Rosebel, with both operations back on-line on April 15th and July 24th. IAMGOLD’s financial position continues to improve with $866m in cash and short-term investments. A considerable amount of this will go toward capital costs as it starts construction at its Cote Gold Project with its JV partner, Sumitomo Metals. Production was down 29k oz. vs. Q2 2019 and 15k oz. vs. Q1 2020. Cash costs and AISC were down 3% and 6% vs. Q1 2020.

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Jaguar Mining: Reported very robust Q2 earnings. Gold production totaled 23.5k oz. Au (vs. 18.37k oz. Au produced in Q2 2019) at 25% and 35% lower cash costs and AISC. The Pilar gold mine saw production increase 17% while Turmalina output increasing 6%. Cash costs and AISC were $586/oz. (vs. $786/oz. in Q2 2019) and $882/oz. (vs. $1,366/oz. in Q2 2019). Jaguar generated operating cash flow of $27.5m and $21.4m of free cash flow. The company’s financial position strengthened considerably with $30.2m in cash vs. $12.1m at March 31st, 2020. Jaguar is well on its way toward reaching a sustainable production rate of 25k oz. per quarter.

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Novo Resources: Will acquire all of the outstanding shares of privately held Millennium Minerals Limited. Its assets are located approx. 10km south of Novo’s 100% controlled Beaton’s Creek conglomerate gold project.

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This will fast track Novo’s transition from a development company toward becoming a junior gold producer at its Beaton’s Creek project. The acquisition provides Novo with key processing infrastructure, including a 1.5 Mtpa processing plant, tailings storage facility, contract power station, administration offices, and assay laboratory. It also greatly accelerates the time to production.

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Osisko Gold Royalties: Reported operational and financial Q2 2020 results and updated guidance for the 2H 2020. Guidance for the 2H 2020 is 33-35k AuEq oz. Osisko generated $18.6m in operating cash flow in Q2 from attributable production of 12.39k AuEq oz. (well below Q2 2019 attributable production of 19.65k AuEq oz.). The company remains well financed to capitalize on opportunities that may present themselves. At quarter’s end, the company had cash on hand of $200m and up to $400m further available under its credit facility. Osisko Gold Royalties, which holds a 5% NSR royalty on the Eagle Gold mine, will see attributable increase throughout the next two to three quarters as it reached commercial production on July 1, 2020.  The company’s operations were impacted by CV19.  

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Pan-American Silver: One of the few large silver and gold producers is highlighted by exceptional optionality from Navidad, Escobal [which it will hopefully be able to bring back into production within the next couple of years], and the skarn deposit project at La Colorada. The company released an updated resource estimate for the skarn deposit, increasing silver resources to 141m oz., with plenty of upside remaining.

Pan-American also reported Q2 2020 operating and financial results and provided updated 2020 guidance, which were rather weak. This was already known as all of its largest assets were impacted by mining suspensions to some degree. Though Q3 will illustrate a massive bounce back from higher production and metal prices. The company produced 2.8m oz. Ag and 96.6k oz. Au, which generated $62.8m from operating cash flow [inclusive of $46.5m of CV19 related mine care and maintenance costs].

The company realized cash proceeds totaling $81.1m from the divestment of investments interests and non-core assets, primarily consisting of; the sale of 10.35m common shares of Maverix Metals and subsequent exercise of 8.25m warrants, resulting in an undiluted interest of approx. 19.9% of the company, the sale of 10m shares in New Pacific Metals, resulting in an undiluted interest of 9.96%; and, the sale of the Juby and Knight exploration properties in Ontario. Pan-American repaid $140m on its four-year, $500m credit facility, reducing the amount drawn at June 30, 2020, to $200m. At quarter’s end, the company had cash and short-term investments of $261.1m and working capital of $471.6m. In August, the company made an additional repayment on the credit facility of $40m.

Lastly, Pan American Silver reported an update mineral reserve estimate totaling 550m oz. Ag and 5.2m oz. Au and an additional 256m oz. Ag and 4.2m oz. Au in M&I resources and 458m oz. Ag and 6.9m oz. Au Inferred. All of its major assets except Dolores saw an increase in reserves and resources in excess of that mined over the last 12-months.

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Pretivm: Q2 production was slightly above 90k oz. Au, while AISC fell to $911/oz. High production and gold prices saw the company generate free cash flow of $82.7m, increasing the company’s cash position to $124.7m and long-term debt of $382.7m. AISC will remain elevated as lateral mine development will remains a 1,000m per month. Over the medium-term, this should allow the company to increase mill feed closer to nameplate capacity of 3.8ktpd vs. the 3.5ktpd is it running at currently. The company’s stock price rose 28% the day of the earnings call, which was long overdue. While Brucejack isn’t close to what it was supposed to be, the stock price fell well behind the cash flow generation abilities.

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Royal Gold: Reported its fiscal year (FY) 2020 results. The company generated record revenue of approx. $500m, 79% of which came from gold. It has reduced its net debt position by $115m, paid $71.5m in dividends, and invested $135.7m in advanced payments towards its silver stream at Khoemacau, which will be its primary growth driver in 2021/2022. In its FY 2020 Q4, the company generated $91.6m in operating cash flow. For its FY 2020, Royal Gold generated $341m in operating cash flow vs. $253m for its FY 2019.

The Khoemacau copper project, on which Royal Gold holds a 80% silver stream (the operator has the option to increase it to 100%) is 54% complete at end of June, 2020. 81% of the capital has been committed and Royal Gold has made contributions totaling $146.8m. The company expected to commit an additional $35-$45m during the remainder of the calendar year 2020 and assuming the mid-point of this range, the remaining commitment in 2021 is expected to be $25m for the 80% stream and $78m should the operator decide to increase the stream to 100%. With the gold-to-silver ratio contracting, this investment is looking increasingly attractive.

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Silvercorp: In Q2 (the company’s fiscal year Q1), the company sold 1.9m oz. Ag as well as a small amount of gold plus lead and zinc. Even though the average price of silver in Q2 remained low, the company was able to generate $30.1m in operating cash flow. Silvercorp remains one of the lowest cost silver producers with cash costs and AISC in the quarter of negative ($1.48/oz.) and $5.61/oz. It has an extremely robust balance sheet with $178.4m in cash and short-term investments as well as its investment in New Pacific Metals worth $178.2m.

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Teranga Gold: Reported an updated life of mine (LOM) plan and updated guidance for its Wahgnion mine. Once the operation achieved commercial production in late 2019, the processing plant has been operating 25% above nameplate capacity, resulting in higher output. In turn, Teranga updated the LOM plan to account for higher throughput, increasing the operations annual production by 25% with a reduced mine life to 10-years. Wahgnion production guidance is now between 150-165k oz. Au, up from 130-140k oz. Updated companywide guidance is for full year production of 375-400k oz. Au.

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Torex Gold: Announced robust Q2 2020 financial results along with updated guidance. Its principal asset, ELG, was temporarily suspended in April, and partially resumed in May with the processing of lower-grade stockpiled material. Full production resumed in early June. Mexican operations were basically hit with 2 months of suspended mining operations, yet Torex still managed production of 59.5k oz. Au in Q2 and generated $28.1m in operating cash flow [prior to working capital adjustments]. Q3 will be a big quarter for the company and should set many records in terms of profitability.

The company’s objective through the end of the year is to pay down debt, which it should be able to reduce significantly given approx. 110k +/- oz. Au of production per quarter combined with significantly higher gold prices. July production numbers were robust with over 42k oz. Au. The company has revised full year production guidance between 390-420k oz. Au. Torex plans to increase capital investment through year end, very modestly, to increase exploration in the ELG underground and the building of a third portal to access underground deposits there. This is expected to reduce the haulage distance in half thereby reducing operating costs. The company has also added a south portal to the Media Luna design in order to mitigate any schedule risk associated with the 7km long access tunnel.

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