AR Argonaut Gold Inc

TORONTO, May 15, 2024 /CNW/ - Argonaut Gold Inc. (TSX: AR) (the "Company", "Argonaut Gold" or "Argonaut") today reported financial and operating results for the first quarter ended March 31, 2024. All dollar amounts are expressed in United States dollars, unless otherwise specified (CA$ refers to Canadian dollars). During the quarter, Argonaut  entered into a definitive agreement (the "Agreement") whereby Alamos Gold Inc. ("Alamos") will acquire all of the issued and outstanding shares of Argonaut pursuant to a court approved plan of arrangement (the "Transaction"). As part of the Transaction, Alamos will acquire Argonaut's Magino mine and in which Argonaut's assets in the United States and Mexico will be spun out to its existing shareholders within a newly created junior gold producer ("SpinCo").   

"At our flagship Magino Mine, ramp up of mining and milling activities during the first quarter of the year proceeded at a slower rate than planned. Mining rates were lower than planned due to low loader availability.  However, mining rates are improving, as expected with a second PC3000 shovel commissioned in late April, which has resulted in mining rates of 65,000 tonnes per day during the first part of May.  Mill throughput rates on a tonne per operating hour basis were largely in line with nameplate rates, however plant availability was low due to a number of significant unplanned downtime events. A specialist team was brought in to assist the mill maintenance team to make the necessary repairs and optimizations to the plant.  That work is expected to be completed by the end of the second quarter, which should put the mill on track to achieve nameplate capacity in the second half of the year.

During the quarter, Florida Canyon delivered strong production while securing the required permits to construct Phase III of the South Heap Leach Pad which is expected to be completed in the third quarter 2024. The Company expects to publish a NI 43-101 Technical Report in the second quarter 2024 which incorporates the 2023 exploration results and updates to the operating plan.

The agreement with Alamos provides a unique opportunity to place Magino in the hands of a company with stronger financial capacity to complete the ramp up and optimization of Magino. Ultimately, this decision provides long-term upside potential for all stakeholders," stated Richard Young, President and CEO of Argonaut Gold.

The definitive agreement Argonaut entered into with Alamos resulted in a number of significant changes to the presentation of the financial statements and expenses. The statements reflect three major changes related to the Transaction.

• The Company's Florida Canyon mine in the United States and the Company's assets in Mexico have been consolidated into one line item in the financial statements as assets/liabilities held for sale and discontinued operations;
• The Company's debt facilities have been classified as current liabilities as under the loan agreements the full amount is due on a change of control; and
• The Company recorded write downs on the carrying value of its property, plant, and equipment for the Magino mine and the Mexican operations to the expected proceeds under the Transaction or disposal;
• In addition, the Company recognized Transaction expenses related to the refinancing and Transaction during the quarter.

Financial Overview

• The financial highlights, including revenue, cost of sales, and gross loss, relate to the Magino mine only, as the results for Florida Canyon and the Mexican mines have been reclassified as discontinued operations.
• The Magino mine's revenue and costs of sales were below plan due to lower than expected production due to lower mill throughput and grades processed.
• Net loss from continuing operations of $333.8 million was larger than the previous year period due to an impairment recorded for the Magino mine, higher income tax expense and higher net finance expense that was previously capitalized in the prior period and the recognition of a gross loss for Magino in the first quarter of 2024.
• Other expense was also higher than the prior comparative period due to a higher loss on derivative instruments as well as transaction costs for re-financing arrangements and the Transaction.
• Cash outflows from continuing operations was larger than the prior year period mainly due to changes in working capital. Operating activities before working capital and other items totalling $5.4 million was comparable to the prior year period amount.
• Cash and cash equivalents including cash held in assets held for sale was $28.8 million and net debt was $186.5 million as at March 31, 2024.
• Consolidated GEO production of 49,444 was 28% higher than the prior year three-month period due to the contribution of production at the Magino mine.
• On March 27, 2024, the Company entered into a definitive agreement to sell all of the issued and outstanding shares of Argonaut to Alamos. Concurrently, Argonaut's assets in the United States and Mexico will be spun out to its existing shareholders as a newly created junior gold producer. As a result of the Transaction, the Florida Canyon mine in the United States and La Colorada mine, San Agustin mine, El Castillo mine, and Cerro del Gallo project in Mexico are accounted for as assets held for sale and discontinued operations.
• On March 28, 2024, the Company obtained a waiver on certain financial covenants on its $250 million financing package (collectively referred to as the "Loan Facilities"). It was anticipated the Company would not be in compliance with certain financial covenants as at March 31, 2024 and accordingly the Company obtained the waiver to prevent a default event which could trigger the Loan Facilities becoming immediately due and payable. This waiver includes requirements for the Company to maintain a minimum cash balance of $20 million at all times until June 28, 2024 and for the Transaction to be completed by the same date. An unremediated breach of covenants can have an adverse impact on the Company's liquidity and solvency.
• On April 4th, 2024, the Company closed a non-brokered private placement, pursuant to which Alamos subscribed (the "Private Placement") for 174,825,175 common shares of Argonaut (the "Acquired Shares"), representing approximately 13.8% of Argonaut's total outstanding common shares after giving effect to the Private Placement. The Acquired Shares were acquired at a price of CA$0.286 per share, for total gross proceeds to Argonaut of $37.0 million (CA$50 million).

Magino Mine

• During the first quarter, the daily mining rates increased month over month from an average of 45,600 tonnes per day ("tpd") in the fourth quarter to 47,400 tpd in January, to 53,200 tpd in February and 54,600 tpd in March. Overall, material movement in the first quarter was 13% higher than the fourth quarter of 2023.
• As expected, the increased mining and haulage rates can be attributed to further utilization of the fleet management system and the commissioning of four additional haul trucks.
• With the second PC3000 shovel commissioned in the second quarter of 2024, daily mining rates are expected to increase to approximately 65,000 tpd by the second half of 2024.
• Milled gold grade continues to improve, with the first quarter grade milled averaging 0.98 grams per tonne ("gpt"), 6% higher than the fourth quarter gold grade of 0.92 gpt. Monthly average gold grades were 0.99 gpt in January, 1.02 gpt in February, and 0.93 gpt in March.
• Plant throughput averaged 5,132 tpd in January, 6,855 tpd in February, and 6,973 tpd in March for a first quarter average of 6,308 tpd. Note that tonnes milled per operating hour were largely in line with design rates in the quarter, the shortfall in mill throughput was attributed to lower-than-expected mill operating time.
• Mill availability was impacted by unplanned downtime related to ball mill coupling failures, the premature wear and replacement of conveyor belts, and ball mill liner failures, as well as a fire within the rubber-lined chute.
• Plant availability is expected to improve through the second quarter reflecting ongoing work to optimize the milling and crushing circuits, including replacement of the conveyor belts and mill liners with high quality components which was going through the first quarter, and into the second quarter.
• This drove a significant increase in throughput rates in April to average 9,252 tonnes per day, the highest monthly average since commissioning in the second quarter of 2023.
• During the three months ended March 31, 2024, the Magino mine produced 16,870 gold ounces and sold 17,182 gold ounces. Production was lower than expected in part due to lower-than-expected mill operating time and gold grade processed. April 2024 production improved to 8,370 GEOs, well above the monthly average of 5,600 GEOs in the first quarter.
• The infill drill program to convert mineral resources to reserves and the mill expansion studies were paused as of the date of the Transaction. These activities are anticipated to resume in the third quarter.

Florida Canyon Mine

• First quarter 2024 ounce production was marginally better than planned at 18,516 GEOs, continuing to build on 2023's strong performance.
• All permits to construct Phase III of the South Heap Leach Pad have been received and construction has been ongoing since December 2023. The project is proceeding on time and budget and is expected to be completed in the third quarter of 2024.
• Analysis and modelling work incorporating the 2023 exploration drilling is ongoing.
• The Company expects to publish a NI 43-101 Technical Report in the second quarter 2024 which incorporates the 2023 exploration results and updates to the operating plan.
• The NI 43-101 Technical Report is expected to include the results of the sulphide proof of concept drill program in 2023.

Full details of the Transaction will be included in a management information circular of Argonaut Gold that is expected to be mailed to Argonaut Gold shareholders on or about May 30, 2024 (the "Circular").  The proposed Transaction will be completed pursuant to a plan of arrangement completed under the Business Corporations Act (Ontario). The Transaction will require approval by 66 2/3% of the votes cast by the shareholders of Argonaut at a special meeting of Argonaut shareholders expected to be held in June 2024.

This press release should be read in conjunction with the Company's consolidated financial statements for the quarter ended March 31, 2024 and associated Management's Discussion and Analysis ("MD&A") for the same period, which are available on the Company's website at www.argonautgold.com, in the "Investors" section under "Financial Filings", and under the Company's issuer profile on SEDAR+ at www.sedarplus.ca.

The Company provides certain non-IFRS measures as supplementary information that management believes may be useful to investors to explain the Company's financial results.

"Cash cost per gold ounce sold" is a common financial performance measure in the gold mining industry but has no standard meaning under IFRS. The Company reports cash cost per ounce on a sales basis. We believe that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate the Company's performance and ability to generate cash flow. Accordingly, it is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. This measure, along with sales, are considered to be key indicators of a Company's ability to generate operating profits and cash flow from its mining operations.

Cash cost figures are calculated in accordance with a standard developed by The Gold Institute, which was a worldwide association of suppliers of gold and gold products and included leading North American gold producers. The Gold Institute ceased operations in 2002, but the standard is considered the accepted standard of reporting cash cost of production in North America. Adoption of the standard is voluntary and the cost measures presented may not be comparable to other similarly titled measures of other companies.

The World Gold Council definition of AISC seeks to extend the definition of cash cost by adding corporate, and site general and administrative costs, reclamation and remediation costs (including accretion and amortization), exploration and study costs (capital and expensed), capitalized stripping costs and sustaining capital expenditures and represents the total costs of producing gold from current operations. AISC excludes income tax payments, interest costs, costs related to business acquisitions and items needed to normalize profits. Consequently, this measure is not representative of all of the Company's cash expenditures. In addition, the calculation of AISC does not include depreciation expense as it does not reflect the impact of expenditures incurred in prior periods. Therefore, it is not indicative of the Company's overall profitability. For the three months ended March 31, 2024 the Company reclassified regional general and administrative expenses in Mexico, and accretion expenses previously classified under the corporate group, to each individual mine group. Management believes this better attributes regional general and administrative expenses and accretion expenses and also improves comparability amongst our peer companies.

"Adjusted net loss" and "adjusted net loss per basic share" exclude a number of temporary or one-time items, which management believes not to be reflective of the underlying operations of the Company, including the impacts of: unrealized losses (gains) on derivatives, non-operating income, foreign exchange losses (gains), impacts of foreign exchange on deferred income taxes, inventory impairments (reversals), impairments (reversals) of mineral properties, plant and equipment, and other unusual or non-recurring items. Adjusted net loss per basic share is calculated using the weighted average number of shares outstanding under the basic calculation of earnings per share as determined under IFRS.

"Net debt" is calculated as the sum of the cash and cash equivalents balance net of debt as at the statement of financial position date. "Net debt" calculation includes unamortized transaction costs netted against the drawn debt, but excludes Convertible Debentures and equipment loans which are currently included in total debt, in order to show the nominal undiscounted debt. This measure has no standard meaning under IFRS and other companies may calculate this measure differently.

"Operating cash flow before working capital and other items" is a non-IFRS measure as it involves adjustments to the operating cash flow metric defined by IFRS. The company presents operating cash flow that excludes certain working capital changes and other items such as income taxes and interest received, this helps investors to assess the performance of the Company's operations.

1.  The following tables provide reconciliations of production costs and cost of sales per gold ounce sold on the financial statements to cash cost per gold ounce sold and AISC per gold ounce for each mine:

^{1.  Plant commissioning began in the second quarter of 2023}

^{1.  For the three months ended March 31, 2024, results of discontinued operations included in cost of sales were $53.7 million and production cost is $47.2 million (three months ended March 31, 2023 cost of sales were $71.5 million, production cost were $61.8 million)}

2.  Adjusted net loss and adjusted net loss per basic share exclude a number of temporary or one-time items detailed in the following table:

Adjusted net loss for the three months ended March 31, 2024 and 2023 has been restated to reflect the reclassification of discontinued operation.

3.  A reconciliation of net debt is detailed in the following table:

4.  A reconciliation of operating cash flow before working capital and other items:

This press release includes certain "forward-looking information" within the meaning of applicable Canadian securities legislation. All statements, other than statements of historical facts, included in this press release that address activities, events, or developments that the Company expects or anticipates will or may occur in the future, including such things as future business strategy, competitive strengths, goals, expansion and growth of the Company's business, operations, plans and other such matters are considered forward-looking information.

When used in this press release, the words "estimate", "plan", "anticipate", "expect", "intend", "believe(s)", "potential", or statements that certain events or conditions "may", "should" or "will" occur, and similar expressions are intended to identify forward-looking information. This information involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information.

Examples of such forward-looking information include statements pertaining to, without limitation, information or statements with respect to the Company's ability to continue as a going concern, satisfying ongoing covenants under the Loan Facilities, the anticipated receipt of applicable court and regulatory approvals for, and completion of, the transaction pursuant to which Alamos Gold Inc. will acquire all of the issued and outstanding shares of Argonaut pursuant to a court-approved plan of arrangement, results of independent engineer technical reviews, the availability and change in terms of financing, the possibility of cost overruns and unanticipated costs and expenses, the ability of the Magino mine to be one of the largest and lowest cost gold mines, the winding down of the Mexican mines, the impact of inflation on costs of exploration, development and production, risk of employee and/or contractor strike actions, the future price of gold and silver, the estimation of the Mineral Reserves and Resources, the realization of Mineral Reserve and Resource estimates, the timing and amount of estimated future production at the Magino mine, Florida Canyon mine, La Colorada mine, San Agustin mine and El Castillo mine, mine closure plans for the La Colorada mine and El Castillo mine, costs of production (including cash cost per gold ounce sold), expected capital expenditures, costs and timing of development of new deposits, success of exploration activities, permitting requirements, currency fluctuations, the ability to take advantage of forward sales agreements profitably, the ability to recover property potentially impaired by third party insolvency proceedings, requirements for additional capital, government regulation of mining operations, environmental risks and hazards, title disputes or claims, limitations on insurance coverage, the use of proceeds from financings, the potential sale of the Company's non-core Mexican assets, and the timing and ability to refinance the existing Term Loan.

Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated, or intended. There can be no assurance that such information will prove to be accurate as actual results may differ materially from those anticipated. Many factors are beyond the Company's ability to predict or control.

Readers of this press release are cautioned not to put undue reliance on forward-looking information due to its inherent uncertainty. Argonaut disclaims any intent or obligation to update any forward-looking information, whether as a result of new information, future events or results or otherwise, except as and when required by applicable securities laws. This forward-looking information should not be relied upon as representing management's views as of any date subsequent to the date of this press release.

The technical information contained in this document has been prepared under the supervision of, and has been reviewed and approved by Mr. Owen Nicholls, CPG, Argonaut's Vice President of Exploration and Mr. Marc Leduc, P.Eng., Chief Operating Officer; both are qualified persons as defined by NI 43-101.

For further information on the Company's material properties, please see the reports as listed below on the Company's website www.argonautgold.com or on www.sedarplus.ca:

Mineral Resources referenced herein are not Mineral Reserves and do not have demonstrated economic viability. Mineral Resource estimates do not account for mineability, selectivity, mining loss, and dilution. The Mineral Resource estimates include Inferred Mineral Resources that are normally considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as Mineral Reserves. There is also no certainty that these Inferred Mineral Resources will be converted to Measured and Indicated categories through further drilling, or into Mineral Reserves, once economic considerations are applied.

Argonaut Gold is a Canadian-based gold producer with a portfolio of operations in North America. Focused on becoming a low-cost, mid-tier gold producer, Argonaut's flagship asset, the Magino Mine, located in Ontario Canada, is expected to become Argonaut's largest and lowest cost mine.

On March 27, 2024, the Company announced the sale of the Company to Alamos Gold Inc. Concurrent with this transaction, Argonaut's assets in the United States and Mexico will be spun out to its existing shareholders as a newly created junior gold producer ("SpinCo"). SpinCo will own the Florida Canyon mine in the United States, as well as the El Castillo Complex, the La Colorada operation, and the Cerro del Gallo project, located in Mexico. The shareholder vote is expected to take place in June 2024.

Argonaut trades on the TSX under the ticker symbol "AR".

SOURCE Argonaut Gold Inc.