Argonaut Gold focuses on Ontario mine after challenging year

Argonaut Gold Inc. [AR-TSX] shares were active Monday on heavy trading after the company reported a 2022 net loss of $152.2 million and a 31% decline in fourth quarter gold equivalent ounce (GEO) production.

“Last year was a challenging year for the company on two fronts: First the increase in construction costs at the Magino project [in northern Ontario] required a large capital raise, including debt, equity and the sale of a royalty. Second, the inflationary pressures had a significant impact on operating results of our low-grade heap leach operations, resulting in an impairment of our Mexican assets and Florida Canyon mine [in Nevada],’’ said Argonaut, Chief Financial Officer David Ponczoch.

The shares sank on the news, falling 19% or 10.5 cents to 44.5 cents on volume of over 9.0 million, making Argonaut one of the volume leaders on the Toronto Stock Exchange. The shares are trading in a 52-week range of $2.75 and 32.5 cents.

Argonaut emerged as a Canadian intermediate gold producer by completing a friendly merger deal with Alio Gold Inc. [ALO-TSX, NYSE].

By combining with Alio Gold, Argonaut expected to benefit from an enhanced asset portfolio and improved geographical diversification with assets in Mexico, Canada and the United States.

In 2022, the company achieved its production targets by producing 203,155 gold equivalent ounces (GEOS). However, GEO sales were down 17% to 207,158 ounces. The company reported a $135 million non-cash impairment of mineral properties, plant and equipment, largely due to the inflationary pressures of the company’s low-grade heap leach operations combined with land access and permitting issues at two of its Mexican mines, San Agustin and La Colorada.

“Looking ahead, management is laser focused on completing the Magino project, with first gold pour planned for mid-May followed by commercial production in the third quarter,’’ said Argonaut CEO Richard Young. “The commissioning of Magino will be the first step in transforming the company as it enters a pivotal growth stage,’’ Young said. “We believe Magino has the potential to be on of the 10 largest and lowest-cost gold mines in Canada, combining a large open pit operation with the potential of higher-grade material to feed an expandable mill.’’

Magino is a past-producing underground gold mine located 40 kilometres northeast of Wawa, Ontario, approximately 14 kilometres southeast of Dubreuilville. It is estimated to host proven and probable reserves of 58.9 million tonnes, grading 1.13 g/t gold or 2.13 million ounces.

By the end of 2022, the company had incurred approximately $583 million on Magino construction, and estimated that the 10,000 tonne-per-day project was 80% complete.

According to a recent technical report, Magino is expected to produce 142,000 gold ounces during the first five years following ramp up to full run rate. The report envisages a mine life of 19 years and a life of mine all in sustaining cost of US$963 an ounce.

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