Update: Aurcana's Q2 Earnings Show Rising Costs, Shrinking Production

Sep. 3.14 | About: Aurcana Corp. (AUNFF)

Summary

Aurcana reported a net loss for the second quarter as the silver price fell, costs rose and production fell.

There was no mention of the idle Shafter Mine in the press release, which I found troublesome.

The stock has lost most of its value since my July, 2013 article as the Shafter Mine stopped producing, contrary to my expectations.

The stock is trading at a steep discount to the value of the company's underlying assets and may now make for a good speculation play.

Aurcana Corp. (OTCQX:AUNFF) just announced its results for the second quarter. It seemed that everything that could go wrong did go wrong:

  • Silver equivalent production fell 4% to 786,000 oz.
  • Ore grade fell from 59 gpt. to 55 gpt.
  • Cash costs rose from $8.90/oz. to $10.29/oz.

As a result, the company reported a loss of $1.4 million on $9.2 million in revenue (note the company uses base metals as offsets in its accounting).

Since I wrote about the stock last July, shares have lost three quarters of their value as the company stopped producing at its Shafter Mine late last year. As I said last July, an investment in Aurcana largely depended on the company successfully ramping up production at Shafter, and this turned out not to work out. Now the company has one producing asset -- La Negra -- which as we have just seen is struggling to turn a profit. With the company's high debt load, it seems that Aurcana is a stock to avoid until its fortunes change.

However at the same time investors have priced in a pretty lousy scenario for Aurcana, and considering that its La Negra Project has an estimated 150 million ounces of silver plus more than this in silver equivalents, this could now be a good speculation stock for investors looking for leverage to the silver price. But until the company brings its costs down, this isn't a good investment.

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