Skip to main content

Silver Seeker Report: This Week in Mining Issue #11: Earnings Season and M&A

Chief Mining Analyst, GoldSeek & SilverSeek

Week Ended May-1, 2020


Agnico-Eagle: Reported Q1 2020 financial results as well as new 2020 production guidance to reflect the temporary shutdown of seven of its eight mines. Operating cash flow in Q1 was $163.4m and $205m before changes in non-cash working capital. This compares favorably to cash flow from operations in Q1 2019, which was $148.7m and $171m before changes in non-cash working capital. There was a minimal impact due to suspension of select mining operations and a larger impact as a result of higher costs at the Meadowbank complex and Meliadine mine, which were ramping up production during the quarter. Q1 AISC was elevated at $1,099/oz. Updated 2020 production is now forecast to be 1.63m-to-1.73m oz. Au with AISC of $975-$1,025/oz., compared to original guidance of 1.875m oz. 2021 and 2022 production guidance remains unchanged at 2.05-2.1m oz.

image001.jpg (403×246)


Alacer Gold: Reported Q1 2020 operating and financial results. The company produced 88k oz. Au with AISC of $700/oz., resulting in $47m of free cash flow generation. The company also reduced its net debt position to $25m at the end of the quarter end.

image002.jpg (403×246)


Alamos Gold: With a strong start to the year, the company produced 110k oz. Au with AISC of $1,010/oz. driven by lower costs and Mulatos. The company generated $81.7m in operating cash flow before changes in non-cash working capital. The company ended the quarter with $215m in cash and $15m in equity securities, which represents a drawdown of $100m on its $500m line of credit in response to the COVID pandemic. The company’s cash balance was significantly lower net of the drawdown as it repurchased a 3% NSR royalty on Island Gold for $55m, which will reduce cash costs by approx. $45/oz. The company will really increase free cash flow in the 2H 2020 and the Young-Davidson mine expansion will be complete and sustaining and expansionary capital investment see a material fall. This is unlikely to last more than 12 or so months as the company has a very deep pipeline of growth projects.

image003.jpg (403×246)


Centerra Gold: The company’s two key assets, Kumtor and Mt. Milligan had another strong quarter, producing 186k oz. at AISC of $712/oz. Mt. Milligan continues its relative underperformance as expected as it trends downward and had roughly 2.5-Yrs. of 170-180k oz. production of annual production left. Oskut, its newest project poured its first gold in January. Cash flow from operations was just over $120m. Its cash position was $194m and $136m in debt.

image004.jpg (403×246)


Eldorado Gold: Reported Q1 production and financial results. The company-maintained operations in Turkey and Greece and Lamaque recommenced production on April 15th 2020, after a temporary suspension from March 25th 2020. As a precautionary measure, the company drew down $150m on its credit facility. Q1 production totaled 116k oz. in Q1, a 40% increase over the comparable quarter in 2019. The company is maintaining guidance of 520-550k oz. with AISC of $850-$950/oz. The company has a strong liquidity position of $364m. The company generated $70m in cash flow from operations before changes in non-cash working capital.  

image005.jpg (403×246)


Equinox Gold: The temporary suspension of mining activities at one of the company’s flagship assets, Los Filos in Mexico, has been extended until May 30th, 2020. Th earliest potential start-up data is May 18th in areas with low or no cases of COVID. Production continues at a reduced level as the company continues processing solution from the Los Filos heap leach pads. Further, the company is ramping up production at its Pilar Mine in Brazil. Phase I construction of the Castle Mountain gold mine continues and is 75% complete. The company also continues to advance engineering and economic studies related to the Los Filos CIL plant and the Santa Luz restart, with the objective of making construction decisions for both projects later this year. Both will have a short-timeline from construction to completion. The company also had a cash inflow of C$20.7m from the exercise of warrants by Pacific Road Resources.

image006.jpg (403×246)


Fortuna Silver: The mandated suspension of operations in Peru has been extended to May 10th, 2020. Mines are allowed to operate with only essential personnel. The company has put in place protocols for the well-being of its work staff. These include Medical screening (health checks before travelling to an arrival at the mine site and regularly taking temperatures before entering and regularly once on site), only essential personnel. Person protective equipment, disinfecting vehicles that travel to and from the mine site, social distancing, and site and camp hygiene. It is worth noting, once again, that Fortuna is basically in a race against the clock to complete construction and ramp up production at Lindero before it runs out of cash, though it is looking like it will win the race.

image007.jpg (403×246)


Lion One Metals: One of my favorite junior exploration companies is mobilizing three drills for its aggressive 2020 dry season exploration campaign at Tuvatu, Fiji. Drill rig one has been operational through the latest seasonal wet season and is currently testing down dip extensions at Tuvatu West; 1500m depth capability drilling NQ-sized core. Drill rig two has been reconditioned and is ready for mobilization to the Kingston-Biliwi prospect 2km north of Tuvatu in newly acquire tenements covering northern half of the Navilawa caldera; 250m depth capability. Drill rig three is recently purchased and designated for new targets within the new Navilawa tenements including Banana Creek, a Tuvatu-style target displaying multiple high-grade outcropping lodes; 1500m depth capability.

image008.jpg (403×246)


Lundin Gold: It is looking increasingly likely that Newcrest Mining [$NCMGY / $NCM.AX] will acquire Lundin Gold at some point in the future. In addition to Newcrest having upped its position in the company multiple times and the fact it holds a 32% interest in the company, Newcrest recently announced it has acquired the project financing package from Orion Mine Finance and funds managed by Blackstone. The combined project financing package is comprised of a gold prepay credit facility for $150m, a stream loan credit facility of $150m and an offtake agreement for 50% of gold production from Fruta del Norte, up to a maximum of 2.5m oz. This is another way of slowly acquiring an additional interest in the company as Newcrest could cancel the debt obligations and later acquire the company at a lower price. Whether this will be the case remains to be seen but given recent events in PNG and the uncertainty surrounding Wafi-Golpu, this would make for a perfect fit as Newcrest would then have two large operations in Australia, one operation in PNG (and a development project), one in Canada and one in Ecuador.   

image009.jpg (403×246)


MAG Silver: After initially contemplating debt financing to fund the remaining cash calls to bring Juanicipio in production, the company announced a C$60m (US$42.5m) private placement with Eric Sprott (his single largest silver investment). While this us unlikely to fill the remaining funding gap in full and provide for sufficient working capital, MAG could very well obtain a $30m credit facility or issue 2-3m shares.

image010.jpg (403×246)


Metalla Royalty & Streaming: One of the smaller players in the royalty niche, Metalla continues to acquire value adding royalties to its portfolio. While it will never be a big player in the royalty space, bigger isn’t necessarily better. It’s also about value creation. Metalla has been quite stealthy in adding a number of these small albeit value-added royalties. It recently announced it entered into a share purchase agreement with Idaho Resources Corp (IRC), a privately held Nevada corporation, whereby a subsidiary of Metalla will acquire 100% of the outstanding shares of IRC for $4m in cash and shares. Through this acquisition Metalla adds a 0.50% gross overriding royalty (GOR) on the Anglo/Zeke block in Eureka Country, Nevada, located on trend to the southeast of the Cortez operations and Goldrush project owned by Nevada Gold Mines (JV between Barrick and Newmont). It also added a 1.05% GOR covering NuLegacy Gold Corp’s Red Hill project in Eureka Country, contiguous to the southeast of the Anglo/Zeke claims. It would be nice to see the company begin generating at least $10-$15m in free cash flow annually but that could take some time as its royalty portfolio is composed of assets rather far from production.


New Pacific Metals: The company announced a leadership transition as Dr. Rui Feng, the company’s founder and CEO has stepped down. Dr. Mark Cruise, the COO, is the new CEO. He has an impressive track record in mining, most recently building Trevali mining from a company with no operating assets to that with four operations and a deep pipeline of growth, diversified throughout parts of Africa, Peru, and Canada.

image012.jpg (403×246)


Northern Vertex: The company reported its fiscal Q3 production results and an operational update related to continuous improvement initiatives, exploration drilling, and capital projects. The Moss mine is an unimpressive operation but companies with marginal and sub-par projects tend to outperform in bull markets. For the three-month period ended March 31st, 2020, the company produced 7.47k oz. Au and 80.78k oz. Ag [8.55k AuEq oz.]. The company announced a second leach pad was commissioned in early March. The company has been stacking crushed ore on the new pad over the last month. Further, management commissioned a new intermediate leach solution system “ILS” to enhance recoveries. This should increase production but the company is still far away from being considered a takeover target. Practically speaking, it will need to produce approx. 60-100k oz. of annual production. Generally, companies with assets that produce under 100k oz. Au aren’t large enough for a buyout but never say never.

image013.jpg (403×246)


OceanaGold: The COVID-19 situation in New Zealand has gotten considerably better over recent weeks. The NZ government decreased the alert level from level four (only essential businesses permitted) to alert level three (additional businesses can resume operating if they can demonstrate required safe operating practices). At its Waihi operations, development of the Martha underground with regional exploration activities have resumed while adhering to proper safety practices. At Macraes, the company resumed mining and processing activities under strict and safe operating practices.

image014.jpg (403×246)


Osisko Gold Royalties: The company amended its small 75% silver stream agreement with Taseko on its Gibralter copper mine. In exchange for C$8.5m (US$6.12m), the on-going per ounce of refined silver will be reduced from $2.75/oz. to nil. This increases Osisko’s operating margin on the silver stream to 100% from 80%.


Osisko Mining: What else to say but Osisko continues its successful exploration efforts as infill drilling intersects high-grade on Lynx and Triple Lynx at its 100% owned Windfall project, which is looking to be one of Canada’s next low-cost high-grade gold mine of scale. Operations remain temporarily suspended due to the Quebec government closure of all non-essential business. When drilling resumes, it will remain focused on the Lynx deposit, the main mineralized zones, and down plunge exploration in the central areas of the mineralized system. Some drill highlights from this round of infill drilling include:

·         2.7m @ 35.3 g/t Au

·         3.5m @ 40.2 g/t Au

·         2m @ 104 g/t Au

·         2.6m @ 76.5 g/t Au

·         4.2m @ 41.2 g/t Au

·         2.3m @ 73.6 g/t Au

·         2.4m @ 11.1 g/t Au

image016.jpg (403×246)


Pretium: The company’s BOD appointed Jacques Perron as President and CEO. With more than 35-Yrs. In the global mining industry, he as extensive technical and operational experience. More recently, Mr. Perron was President and CEO of Thompson Creek Metals before it was acquired by Centerra Gold in 2016. Prior to that, he was President and CEO of St. Andrew Goldfields, and senior vice president of Iamgold. He succeeds Joseph Ovsenek, who was Pretium’s President and CEO since 2017. Pretium Resources remains an attractive takeover target for a large mid-tier or emerging senior producer, though to be acquire Mr. Perron will have to show operational consistently, which means 350-400k oz. Au p.a. with AISC <=$800/oz. Kirkland Lake would seem like a logical fit as it has the pockets to develop adequate stope inventory. Kirkland Lake would also likely be able to consistently produce 400k oz. Au annually, which would be an ideal asset to add to push becoming a 2m oz. producer, solely from assets in Tier-1 jurisdictions (Australia and Canada).

The company also reported Q1 2020 operating and financial results. Gold production totaled 82.89k oz. Au with AISC of $996/oz. This generated free cash flow of $41.8m and ended the quarter with $40.6m. The company subsequent to quarter end, drew down $16m from its revolver to improve liquidity. Restrictions from COVID-19 will impact mine development and delay start of the reverse circulation grade control drill program as well as production. The impact is not yet known. There are still several optimization measures that have yet to be undertaken, notably increasing average annual output to 380-410k oz. Au (which is possible but likely won’t be achieved until the company is taken over) and more notably, a significant reduction in all-in sustaining costs to $775-$825/oz.

image017.jpg (403×246)


Seabridge: The company released a greatly improved preliminary economic assessment (PEA) on its KSM project. The company added a larger Iron Cap mine which both improves production and economics. Total cash costs (net of byproducts) is estimated at just $4/oz. compared to $358/oz. in the 2016 PEA. The after-tax NPV5% and IRR increased 80% to $6B and a 40% improvement to 14%. This is using base case price assumptions of $1,340/oz. Au and $2.80/lb. Cu, the former likely to prove overly conservative. The project will have an initial lie of 44-Yrs, producing 19.6m oz. Au and 5.4b/lbs. Cu from M&I plus an additional 20.8m oz. Au and 13.8b/lbs. Cu from Inferred. Over the first 5-Yrs. Average annual production is estimated at 1.336m oz. Au, 264m lbs. Cu, and 4.9m oz. Ag. Over the initial 44-Yr. mine life average annual production is estimated at 627k oz. Au, 385m lbs. Cu, and 2.56m oz. Ag.

image018.jpg (403×246)


Silvercorp Metals: The company may have made a transformational acquisition (bid, that will likely go through) as it announced it entered into a definitive agreement whereby Silvercorp will acquire all of the issued and outstanding shares of Guyana Goldfields. This will create a diversified mid-tier, multi-metal producer with operations in China and Guyana.

Per the terms of the transaction, each holder of Guyana Goldfields shares will have the option to receive, for each Guyana Goldfields share held, C$0.60 in cash or 0.1195 of a Silvercorp common share, subject to a maximum cash consideration of C$33.2 million. If all Guyana Goldfields shareholders elect to receive cash, consideration for each share will consist of C$0.20 in cash and 0.0796 of a Silvercorp common share. Assuming the maximum cash consideration, existing Guyana Goldfields shareholders will own 7.1% of Silvercorp’s pro forma basic shares outstanding following the Transaction. This deal implied an equity value of C$105m or approx. US$75m. If Silvercorp can turn operations around at the Aurora mine, this will create very significant shareholder value.

The total estimated funding for completing development of the underground mine (transitioning from open-pit) is US$100m. Silvercorp remains very well capitalized, with somewhere between $120-$130m in cash and no debt upon completion of this deal. Further to this, as of 4/28/20, Silvercorp’s interest in New Pacific Metals stands at US$175m. The current enterprise value of Silvercorp Metals is roughly $500m net of cash and debt and $325m net of its investment in New Pacific. Per the technical report for the underground mine at Aurora, the NPV5% after-tax @ $1,600/oz. Au is US$550m and $650m at $1,700/oz. In short, if Silvercorp could achieve the life of mine parameters or even come with 10%, this should increase its Net Asset Value by 100% and increase its enterprise value by 200%. Highlights from the updated LOM include:

·         2P reserves of 2.24m oz. with total M&I resource of 3.82m oz. (leaving significant room to increase mine life) and an additional 1.88m oz. Inferred. With reasonably successful conversion rates and exploration, this should have a mine life upward of 20-Yrs.

·         Initial 14-Yr. mine life, with operations to transitioning to underground by mid-2021 (though more likely end 2021) due to COVID-19.

·         Avg gold production estimated at 170k oz. Au over the first full 5-Yrs. And 145k oz. Au over the life of mine.

image019.jpg (403×246)


Silvercrest Metals: The company closed the private placement with SSR Mining, giving the company roughly US$170-US$175m in cash. If the company decided to upsize the project (which is likely), initial capital costs should run anywhere between $115m-$135m, vs. the 1,250tpd currently envisioned in the PEA, with initial capital costs of $US101m. Silvercrest and MAG silver have really set themselves apart as silver companies to own for the foreseeable future, although caution is warranted given the significant run up in price of both companies.

image020.jpg (403×246)


Torex Gold: Reported 2019 year-end reserve and resource estimate for the ELG complex. Total gold reserves declined by 9% to 2.26m oz. Open-pit gold reserves declined by 19% year on year, due to depletion. Somewhat offsetting the material decrease (although already known) in open-pit reserves was a 140% increase in underground gold reserves net of depletion. Remaining conservative, the gold price used to estimate reserves in 2019 remained unchanged at $1,200/oz.

According to the mine schedule, at the beginning of 2024, the open-pit portion of the ELG complex will be mined out and the company expects to be mining exclusively from underground resources, primarily Media Luna. Media Luna figures to be much larger than the ELG complex in term of total gold production (that is over the LOM). In 2019, the first infill program at Media Luna was completed and upgraded 2.24m AuEq oz. to Indicated from Inferred. The feasibility study is underway with completion expected in the 1H 2021. Further, Media Luna has a massive Inferred resource of 4.56m oz. AuEq. Beyond that, only 1/3rd of the magnetic anomaly that hosts the indicated and inferred AuEq oz. is explored, offering significant exploration upside. There are remains exploration upside at both the Sub-Sill and ELD (underground components of the ELG complex) offer expansion opportunities, notably down dip. In 2020, the exploration program will continue under the El Limon pit at both Sub-Sill and ELD, and even broaden out to determine whether mineralization continues below the Guajes pit. In the near future, It would be great to see an acquisition of a development project with above average capital and operating costs, a place where Torex’s Muckahi system could really add value.


Yamana Gold: The company reported strong Q1 production and cash flow generation. Consolidated production totaled 192k oz. Au and silver production of 2.73m oz. for AuEq production of 221.7k oz. AISC was $1,032/oz.  Operating cash flow generation was robust at $164m before changes in non-cash working capital. The company continues to deleverage its balance sheet with the sale of Equinox share after quarter end and the sale of a royalty portfolio, which will bring in $30m cash once Nomad Royalties begins trading and a $45m equity position in the company. The company also entered into a definitive option agreement pursuant to which it has granted a privately-held portfolio management and capital markets company based in Argentina, owned by Eduardo Elsztain and Saul Zang, the right to acquire up to a maximum 40% interest in a JV formed to hold the Suyai Project.

image022.jpg (403×246)


image011.jpg (403×246)


Chris Marchese for the Gold Seeker Report

Chief Mining Analyst at GoldSeek & SilverSeek

Chris Marchese GoldSeek.jpg (300×300)

Chief Mining Analyst with GoldSeek and SilverSeek. Previously he was the Senior Mining Equity and Economic Analysis at The Morgan Report. He was a Co-Founder and Director of Lemuria Royalties, before it was acquired in March 2018. He also co-authored The Silver Manifesto with David Morgan in 2015

Legal Notice / Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment., have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of only and are subject to change without notice. assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this Report. The information presented in stock reports are not a specific buy or sell recommendation and is presented solely for informational purposes only. The author/publisher may or may not have a position in the securities and/or options relating thereto. Fortuna Silver Mines is not a sponsor of this, or any other related, websites. Investors are advised to obtain the advice of a qualified financial & investment advisor before entering any financial transaction.

Join the Free Weekly Silver Review! week in review delivered direct to your inbox!
Average: 4 (2 votes)

SilverSeek e-Weekly

Join the Free Weekly Silver Review! week in review delivered direct to your inbox!