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Argonaut Gold: A Very Reasonable Valuation For An Organic Growth Story

Mar. 03, 2021 9:55 PM ETArgonaut Gold Inc. (ARNGF), AR:CA21 Comments
Taylor Dart profile picture
Taylor Dart


  • Argonaut Gold released its Q4 and FY2020 results last week, reporting a new quarterly record for gold-equivalent ounce production.
  • This sharp increase in production combined with higher metal prices translated to 19% revenue growth year-over-year.
  • While Argonaut continues to be an unattractive high-cost producer with FY2021 guidance forecasting costs of $1,300/oz, the story going forward is Magino which provides significant organic growth.
  • At a current market cap of ~$494 million, the stock looks very reasonably valued here at just ~$92.00/oz, so I see the stock as a Speculative Buy here at US$1.63.

We're more than two-thirds of the way through the Q4 Earnings Season for the Gold Miners Index (GDX), and one of the most recent names to report is Argonaut Gold (OTCPK:ARNGF). While most of the Mexican gold producers saw a sharp decline in output year-over-year, Argonaut saw only a marginal decline in production, thanks to the timely acquisition of Alio Gold.

This deal padded what was an otherwise difficult year due to temporary COVID-19 related shutdowns, helping Argonaut report record revenue in FY2020. However, with sentiment surrounding miners in the gutter, Argonaut has sold off again, despite a strong organic growth profile. With Argonaut now trading at below ~$100.00 per reserve ounce, I see the stock as a Speculative Buy here at US$1.63.

(Source: Company Presentation)

Argonaut Gold released its Q4 and FY2020 results last week and reported record quarterly production of 57,000 gold-equivalent ounces [GEOs], a 20% increase from the same period last year. This strong finish to FY2020 helped the company to report a multi-year high for annual GEO production, with production coming in at 203,500~ GEOs (including Alio Gold output). If we adjust for production under Argonaut's ownership, annual production came in at 179,200~ GEOs, down 8% year-over-year.

While the year-over-year decline is not ideal, it's actually a solid result given that Mexico issued a nearly two-month government-mandated shutdown related to COVID-19 before mining was declared essential. Let's take a closer look at the results below:

(Source: Company Filings, Author's Chart)As shown in the chart above, it was a solid finish to the year for San Augustin, with ~18,600 GEOs produced, pushing annual production to ~63,900 GEOs. This figure was just shy of the ~64,800 GEOs produced in FY2019, driven by higher mining rates, with ~9.3 million tonnes of ore mined in FY2020. Meanwhile, El Castillo had a weaker year due to a shift to run of mine ore vs. crushed ore, which

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Taylor Dart profile picture
"A bull market is when you check your stocks every day to see how much they went up. A bear market is when you don't bother to look anymore."- John Hammerslough You can access more in-depth research, my current portfolios, new positions I am entering/exiting, and proprietary sentiment indicators for gold miners in my newsletter below.  Returns Link: https://imgur.com/a/6fcWjD6Subscription Link: https://buy.stripe.com/3cseV37nl9Y7dUcaEI - Disclosure: I am not a financial advisor. All articles are my opinion - they are not suggestions to buy or sell any securities. Perform your own due diligence and consult a financial professional before trading or investing.

Analyst’s Disclosure: I am/we are long GLD, KL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (21)

Brian Cellars profile picture
Hey, Taylor, I presume your conservative fair value for Argonaut of US$2.38 is for 2023 with Magino online, right? I've been selling with it over $2.30 and am wondering whether I should sell out completely at current levels.
Taylor Dart profile picture
Hey Brian,

Fair value is current, multiple would increase once in production.
Brian Cellars profile picture
@Taylor Dart Thanks, Taylor. Much appreciated. I'll hold the rest for now and be ready to sell if gold and miners drop again.
Taylor like your previous metals presentations.Do you review base metals i.e. copper- U- nickel?
Taylor Dart profile picture
Hi Dg,

I don't unfortunately, I try to stick to my area of competence, and already more than 100 names to follow in gold//silver space.
Helpful insight!
marissamae profile picture
Glad to see Dart likes it since I have it. Also this is a top pick for Don Durrett so this may be a good bet to make.
Cute Investor profile picture
AR and KL account for 15% of my portfolio right now. Will keep adding them if gold dip further. Inflation will be more than 3%. Current unbelievable gold miners dumping is a very good opportunity.
@LyChauncey, 15% of your portfolio or 15% of the Precious Metals Equity portion of your portfolio?
Cute Investor profile picture
@Avoid the Herd 15% of my entire portfolio right now.
Hope you are young and / or very nimble. It's okay to only have a small number of eggs in your basket, just as long as you watch those eggs very carefully.
permanent profile picture
Great article, good story. So many miners at very reasonable prices right now. I think gold might be ready for some upward momentum soon after the recent correction.
So it might be smart to ad some mining shares.
bver88 profile picture
Nice write up on this 'Rodney Dangerfield' biz model-
value indeed-

< 2cdn should add a few more-

- getting more attractive by the day

Thank you, TD for your work.
Taylor Dart profile picture
@bver88 Thank you, so glad it was of value!
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