Update: Golden Minerals' Earnings

Aug. 7.14 | About: Golden Minerals (AUMN)

Summary

Golden Minerals announced a second quarter loss of $5 million on no revenue, as its Velardena Mine was inactive, having re-started production on July 1st.

More importantly, the company has been actively exploring its properties while searching for a JV partner for its El Quevar Project while it cut G&A expenses to $1.1 million.

These figures were better than I anticipated, which leaves the company with more cash on hand.

The shares are still risky but they provide high leverage to the silver price, making it attractive as an "option" on the silver price.

Golden Minerals (NYSEMKT:AUMN) just announced its second quarter earnings results. The company was able to limit its losses to just $5 million, which is excellent considering that the company had been spending $2 million on G&A and over $2 million on care and maintenance of Velardena alone. In the second quarter the company accomplished a lot while spending just $1.1 million on G&A. It devised a plan to restart production at Velardena, which was announced in July. The company has also been shopping for a JV partner to help fund the development of its El Quevar Project in Argentina. This is necessary given that the company is running low on cash -- despite cutting costs it had just $10.4 million left at the end of June.

In my most recent article on Golden Minerals -- published in July -- I showed that the company probably couldn't turn a profit even if it was able to produce at the low end of its production cost estimate range of $12/oz. - $15/oz. despite the fact that it was assuming a $1,250/oz. gold price when calculating offsets. Since then things have changed -- some good and some bad. First, we already saw the reduction in G&A to $1.1 million, or $4.4 million annualized. This is a much better figure than the $6.4 million - $8 million estimate I put forth in July. Also we have seen gold and silver prices fall, which lowers the company's revenues, but at the same time we have seen strength in lead and zinc prices, which should offset this.

Ultimately I am slightly more optimistic having seen this report given that the company is moving forward with both of its projects while spending less money. I also think prospective investors are getting a better entry point, even though the silver price is lower. The appeal of Golden Minerals continues to be its optionality to the silver (and to a lesser extent gold) price. Investors looking for a company that will flourish at $20/oz. silver and $1,300/oz. gold should look elsewhere.

Disclosure: The author is long AUMN. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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