Update: Argonaut Gold Earnings

Aug.14.14 | About: Argonaut Gold (ARNGF)

Summary

Argonaut Gold has reported weak earnings for Q2 2014.

This company’s plan to meet the lower part of the guidance is much worse than I expected in my previous article.

As such, the investment thesis changes completely as Argonaut Gold is no longer a fast grower.

Argonaut Gold (OTCPK:ARNGF) has released its financial results for the second quarter of this year, which show a 9% revenue decline to $40.3M and a 69% net profit decline to just $2M for the quarter on a production of 30,300 gold-equivalent ounces. The cash cost per ounce sold increased by 18% to $756 per gold-equivalent ounce.

This might sound very disappointing at first sight, but keep in mind that Argonaut Gold was expecting a stronger second half of the year, and it repeated this guidance, as CEO Dougherty stated "the projects were positioned for a stronger H2 2014 as a lot more gold-equivalent ounces have been loaded on the leach pads." These ounces will be recovered in the second half of the year which should result in a boosted gold production at a slightly lower cost, as the company should be able to spread its fixed costs out over more produced ounces, thus decreasing the fixed cost per ounce.

If Argonaut Gold wants to meet the lower end of its guidance of 135,000-150,000 ounces of gold, it will have to produce 64,000 ounces in the second half of this year, which would be a 5-6% increase compared to the first half of the year. It sounds like we shouldn't expect exciting things from Argonaut Gold as the company is now aiming to meet the lower end of the guidance, so I don't think we'll see any special surprises.

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