Richmont Mines (RIC-T) A Bet On Future Mining Growth
- Richmont Mines beat earnings estimates by $0.03 per share on strong gold sales at its Quebec assets.
- Richmont Mines doubled its cash position, reflecting a 689% gain in operating cash flows in 2014.
- The Island Gold mine is undergoing extensive drilling and development work to unlock additional value.
Richmont Mines recently reported fourth quarter earnings
that exceeded analysts' consensus estimates, as the company sold more gold at lower cash costs per ounce. Gold sales for the year rose 49%, with strong operational performances at the Island Gold, Beaufor and Monique gold mines in Canada. Richmont Mines plans to invest $48.3 million on the development of the Island Gold Mine this year to access deeper, high-grade resources, which should expand mine life and cash flows.
All figures in this report are in Canadian dollars unless otherwise stated.
Quebec assets drive Q4 earningsRichmont Mines posted a 6% increase in Q4 revenues as the company sold more gold ounces at its Beaufor and Monique mines in Quebec. These operational results offset the decline in gold sales at the Island Gold Mine in Ontario. Total gold production grew 8% to 23,854 ounces. Gold prices (priced in Canadian dollars) rose 2% in the quarter, and provided a much needed tailwind for Q4 earnings given the difficult metals market.
The fall in gold prices is largely attributable to a strengthening US economy, which prompted the US central bank to end its lengthy QE program. The US dollar responded by rising to multi-year highs. In turn, investors flocked to US equity markets, and out of safe haven assets, such as gold. Weak gold has shaken up profits and cash flows at every gold miner as a result.
Low operating unit costs helped Richmont Mines exit Q4 with positive net earnings of $1 million or $0.02 per share, compared to a net loss of $28.7 million or $(0.72) per share in 2013. The weakening Canadian dollar had also benefited the company's financial growth, Richmont Mines CEO Renaud Adams said in the earnings call.
Analysts had expected a profit loss of $(0.01) per share, according to estimates compiled by Thomson Reuters.
Fiscal results show compelling financial growthRichmont Mines finished the year with revenues up 47% on 2013, at $132.2 million, thanks to exceptional gold sales that outweighed the 2% drop in gold prices. Gold sales ballooned 49% to 94,503 ounces, the second highest in the company's history. Gold production rose 47% to 95,208 ounces, exceeding the company's guidance estimates of 85,000 to 90,000 ounces.
In 2014, Richmont benefited from a full-year of production at Monique, which reached the end of its mine life in the last week of January 2015. In addition, the company collected partial gold production from the W Zone mine, which closed in the second half of last year. Gold production at Island Gold and Beaufor rose 21% and 8%, respectively, because of high-grade gold recoveries (see Figure 1).
Figure 1: Operation results at each operating mine in 2014. Source: RIC
Net earnings climbed to $8.2 million, or $0.18 per share, compared to a net loss of $33.2 million or $(0.84) per share in 2013. The net loss in the previous year reflects charges of $22.1 million or $0.56 per share, including the hefty $13.4 million impairment loss on W Zone's assets. Richmont Mines exited the year without incurring an accounting charge.
The cash balance at year-end doubled to $35.3 million, as operating cash flows grew a substantial 689% to $27.3 million. Given capital expenditures of $23.1 million for the year, Richmont Mines registered $4.2 million in free cash flow. Cash on hand as of Feb. 11 stands at $67.5 million after the recent $38.5 million equity financing deal. The gross proceeds from the equity deal for this year's development program are for the Island Gold mine to expand the existing resource base.
Expanding Island GoldRichmont Mines plans to spend $56.3 million in capital expenditures for its operating mines, where $48.3 million of that amount will go toward exploration drilling, ramp extensions and mine development at Island Gold. Exploration drilling will consist of 41,000 meters of underground drilling and 20,000 meters of surface drilling. The program intends to extend the current mineral resource base.
What's more, the drill program includes 59,000 meters of definition and delineation drilling to test the continuity of high-grade gold at the Island Gold deposit. This will help upgrade the current inferred resource between 500 to 1,000 meter depth levels to the measured and indicated resource category, and eventually to the proven and probable reserves for mining in 2016.
We expect the company to complete an economic study by the end of 2015 that incorporates the upgraded resources and reserves. Richmont Mines also plans to extend the main ramp to a minimum of 750 meters, and the second ramp to a minimum depth of 570 meters to access deeper zones of the deposit in 2016.
All these efforts should ultimately expand Island Gold's operational and financial outlook, with an extended mine life.
"In the short-term our objective is to position the mine so that most of our 2016 mining activity takes place below at depth of 400 meters where the better ounces are located," Richmont Mines CEO Renaud Adams said on the call.
"Our ultimate objective is to transform Island Gold Mine into a multimillion ounce long-life, high production and low cost operation."
We remain bullish on Richmont Mines, as the company positions itself for future growth through expanding its Island Gold operation, and improving the cost efficiency at its Beaufor gold mine.
Christopher De Sousa |
