Update: Argonaut Gold Is Better Off Than The Company's Q2 Financials

Aug.15.14 | About: Argonaut Gold (ARNGF)

Summary

Argonaut Gold announced Q2 earnings came in at $2 million with $13.5 million in operating cash-flow and $40.9 million in revenues.

The figures are weaker than expected but the company is ramping up its operations.

As I expected production would be weak but increase as the year goes on.

Investors should also keep in mind that the company's project pipeline is extensive and not reflected in these numbers.

I continue to like Argonaut Gold as its share price remains depressed.

Argonaut Gold (OTCPK:ARNGF) just reported its second quarter earnings results. On the surface they don't look so great. The company's revenues fell from $44.9 million to $40.9 million. Income fell from $6.5 million to $2 million. The two reasons behind this are lower gold and silver prices, and lower gold equivalent sales. Specifically gold equivalent sales fell from 32,400 oz. to 31,700 oz. Furthermore gold equivalents produced fell from 34,600 oz. to 30,300 oz.

For a company that is supposed to be growing this looks bad. But the company's sales and production don't reflect the true situation. The company actually increased the amount of gold equivalents loaded on the leach pads to be extracted and produced in the near future. Specifically this figure rose from 43,800 oz. to 56,800 oz., which represents a 29% increase. Expected recoverable gold rose 26%. These figures will be reflected in the company's third quarter financials.

This reflects the point I made in May when I argued that the company's weak near-term production masked long-term strength. Investors should also note another point I made in May, which is that a lot of the company's value is in its project pipeline, which is not something reflected in financials. The big story is still the company's regulatory issues surrounding its San Antonio Project, which can't get permitting. As a result investors are assigning virtually no value to it, but as I argued while the risk is high it is certainly not insurmountable, and in a higher gold price environment the Mexican government will want to collect the taxes and royalties from this project. the company also has the San Agustin Project recently acquired from Silver Standard Resources (NASDAQ:SSRI) and the large Magino Project. With all of these projects in production in a few years it is possible for the company to be producing 500,000 ounces of gold equivalents or more, making the $619 million valuation very compelling.

Disclosure: The author is long SSRI. 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. I own a small stake in Argonaut Gold through my Silver Standard holdings.

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