Aura Minerals (OTCPK:ARMZF) just reported spectacular second quarter earnings. The company generated a profit of $4 million or $0.02/share versus a loss of $50 million or $0.22/share in the second quarter last year. Revenue fell year over year as the company's Brazilian gold mining operations wind down. Operating cash-flow rose, however, from $11 million a year ago to $13 million in the second quarter.
The highlight of the quarter was the company's San Andres gold mine, which saw an increase of production from 15,400 oz. last year to 22,200 ounces this year while cash costs per ounce plummeted from $1,150/oz. to $680/oz. This is far better than the company's guidance of $800-$950/oz., and it beats my expectation of $900/oz. put forth last month. The company's Aranzazu Project was the one disappointment as production costs rose. They were down year over year from $3.63/lb. of copper to $3.07/lb., but they were up from the first quarter from $2.78/lb. If you recall one of the driving forces behind this stock will be that costs at Aranzazu will come down over the next few quarters, making this a disappointment, but it is the only one for the quarter.
Ultimately pretty much everything is going right for the company. It is bringing costs down and turning a profit that is very impressive for a company valued at less than $30 million. If we annualize it out the shares trade at less than 2-times earnings. But of course this is still a relatively high risk stock considering the company's debt load, its high costs at Aranzazu in the face of a weak copper market, and the fact that the company is shutting down its Brazilian Projects. The lost gold production from these projects isn't a big deal but the cost of shutting them down is, and that could weigh on the company's stock longer term. Assuming you don't think copper will fall from here the stock should be purchased aggressively at the current valuation. Otherwise the company is vulnerable. As much as I like the company's current earnings potential at today's market prices I'm not thrilled with the copper market and I would hold back on adding to the stock at this time for that reason.
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