Alio Gold Inc. (TSX:ALO) (NYSE AMERICAN:ALO)
(“Alio Gold” or the “Company”), today reported its third quarter
2017 results. Production results were previously released on
October 5, 2017. The Company will host a conference call at
11:00am ET today to discuss the results and the details of the call
can be found at the end of the release.
Third Quarter Highlights and Recent
Developments
- Gold production of 19,429 ounces at an all-in sustaining cost1
(“AISC”) of $1,104 per ounce.
- Completed bought deal equity financing of C$50.4 million.
- Received formal Change of Land Use Permit at Ana Paula Project
(“Ana Paula”).
- Advanced underground decline at Ana Paula:• Permit
approved• Contracts awarded• Underground exploration
program to start mid-2018
- Initiated surface exploration program targeting a zone north of
the proposed pit at Ana Paula.
- Drill results from first two twinned holes at Ana Paula confirm
the presence of high-grade mineralization and the lithology of the
previous drilling.
- Received C$3.5 million in warrant exercise proceeds and
exercised a buy-back right from Goldcorp of a 1% net smelter
royalty (“NSR”) on Ana Paula for US$2.9 million.
“We continue to focus on our key priorities
which include executing on our revitalization plan at the San
Francisco Mine and advancing our high-grade, high-margin Ana Paula
project,” said Greg McCunn, Chief Executive Officer. “As previously
reported, the San Francisco mine had a challenging Q3 as we were
not able to ramp up our pre-stripping rates inline with our
revitalization plans primarily due to a slow build up of equipment
by the mining contractor. In October, a second contractor was
mobilized to site and mining rates have now increased with Phase 5
of the San Francisco pit now opened up. As a result, we only
recently gained access in early November to the main ore body and
started delivering ore to the crusher at the planned rates and
grade. With 67,488 ounces produced in the first three quarters this
delay in access to the main ore body has impacted our expected Q4
production and we have reduced our full year guidance to between
82,000 and 86,000 ounces. While the last four months have been
difficult, we have positioned ourselves well for 2018 as Phase 5 is
expected to supply the bulk of the ore for the next 8 months of
operation. In addition, we have commenced pre-stripping both Phase
6 of San Francisco and Phase 2 of the La Chicharra pit.
At our high grade, high margin Ana Paula project
we commenced the definitive feasibility study which is on track to
be completed in Q2 2018. Significant progress was made on the
permitting with the receipt of the change of land permit and the
underground decline permit. The underground decline will provide
access to initiate an underground drill program in mid-2018 which
has the potential to significantly increase the economics of the
project. We awarded the contracts for the underground decline and
the team will begin mobilizing to site shortly. Our balance sheet
remains strong with $68.5 million in cash and short term
investments following our bought deal financing in early July.”
Summarized Financial and Operating Results
($ thousands, except where indicated) |
Three monthsended Sept 30 |
Nine monthsended Sept 30 |
2017 |
2016 |
2017 |
2016 |
Gold sold (ounces) |
|
19,601 |
|
23,327 |
|
67,144 |
|
74,468 |
Silver sold (ounces) |
|
8,808 |
|
13,868 |
|
31,038 |
|
43,423 |
Metal revenues |
$ |
25,194 |
$ |
31,212 |
$ |
84,569 |
$ |
92,896 |
Production costs, excl. depreciation and depletion |
$ |
17,523 |
$ |
18,588 |
$ |
52,956 |
$ |
55,877 |
Net earnings from operations |
$ |
5,082 |
$ |
29,923 |
$ |
22,613 |
$ |
30,429 |
Net earnings |
$ |
5,197 |
$ |
29,719 |
$ |
14,751 |
$ |
25,781 |
Net earnings per share, basic |
$ |
0.12 |
$ |
0.93 |
$ |
0.39 |
$ |
0.81 |
Cash flows from operating activities* |
$ |
2,738 |
$ |
9,844 |
$ |
15,253 |
$ |
24,089 |
By-product cash costs2 (per ounce) |
$ |
886 |
$ |
785 |
$ |
781 |
$ |
740 |
AISC1 (per ounce) |
$ |
1,104 |
$ |
846 |
$ |
957 |
$ |
812 |
Average realized gold price per gold ounce |
$ |
1,278 |
$ |
1,338 |
$ |
1,251 |
$ |
1,240 |
*after changes in non-cash working capital |
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Financial performance
Metal revenues decreased to $25.2 million
compared to $31.2 million during Q3 2016, as a result of fewer
ounces sold, and a decline in the average realized gold price.
Production costs, which comprise the full cost
of operations excluding depreciation and depletion, form a
component of cost of sales and decreased to $17.5 million compared
to $18.6 million during Q3 2016. The decrease was a result of the
increased deferred stripping.
Depletion and depreciation costs decreased to
$1.0 million compared to $4.2 million during Q3 2016. This decrease
was due to an improved mine plan, resulting in lower
unit-of-production depreciation rates.
Earnings from operations decreased to $5.1
million compared to $29.9 million during Q3 2016. This decrease was
primarily due an impairment reversal of mineral properties and
other assets of $23.7 million during Q3 2016. Additionally, there
were lower earnings from mine operations of $6.7 million compared
to $8.5 million during Q3 2016 primarily a result of fewer ounces
sold and a lower realized average price.
Corporate and administrative expenses increased
to $1.6 million compared to $1.4 million during Q3 2016 as a result
of increased labour costs related to increased staff and
appreciation of the Mexican peso.
Cash provided by operating activities was $2.7
million compared to $9.8 million during Q3 2016. The decrease was
due to:
- A decrease in metal revenues due to fewer ounces sold and a
lower realized average price;
- Tax instalments being applied against VAT receivable;
- Slower VAT receivable collection;
- Building of inventory supplies
Cash and cash equivalents, and short term
investments at September 30, 2017, were $68.5 million. During the
quarter, the Company generated $2.7 million from operations at the
San Francisco Mine (“Mine”), and at the Mine invested $3.9 million
on expansionary capital expenditures, $2.6 million on sustaining
capital expenditures, $0.3 million on exploration and evaluation
projects. At the Ana Paula Project the Company invested $3.2
million. Also, the Company received $37.9 million net proceeds from
the bought deal financing, $2.5 million related to the completion
of the sale of the Caballo Blanco Property (“Caballo Blanco”) on
July 20, 2016, and $2.4 million of its VAT receivable.
Working capital3 at September 30, 2017, was
$73.0 million.
San Francisco Mine (100%-owned)
The Mine produced 19,429 gold ounces and 8,808
silver ounces compared to 24,052 gold ounces and 13,868 silver
ounces during Q3 2016. The decrease was primarily as a result of
lower grade as mining was primarily from the early stages of Phase
5 of the San Francisco pit, as mining of Phase 1 of the La
Chicharra pit was depleted.
The Mine’s by-product cash cost was $886 per
ounce while AISC was $1,104 per ounce. During Q3 2016 by-product
cash cost was $785 per ounce and AISC was $846 per ounce. The
increase in cash cost was due to fewer ounces produced combined
with an increase in waste stripping in-line with the new mine
plan.
The Revitalization Plan announced during the
second quarter which includes a significant pre-stripping campaign,
modifying the crusher and upgrading the power infrastructure
continued to advance during the third quarter. The pre-stripping
campaign envisions moving approximately 22 million tonnes of waste
from the San Francisco Main pit and the La Chicharra pit over the
next 20 months. Pre-stripping of Phase 6 of the San Francisco Main
pit commenced in July 2017 and a second contractor mobilized a team
in October 2017 to undertake pre-stripping Phase 2 of the La
Chicharra pit. During the quarter, significant stripping to fully
access Phase 5 occurred that will be the primary ore source for Q4
and the first half of 2018. The main ore zone in Phase 5 was not
accessed until the first week in November, approximately 3 months
behind plan.
The crusher improvement project is advancing
with the decision to add a high pressure grinding role (‘HPGR’) to
the circuit. The scope of the project has been determined and a
purchase order to initiate the logistics for the fabrication of the
HPGR was signed. It is expected that the HPGR would be fully
operational in late 2018. The crushing circuit modifications
are expected to improve gold recovery and increase reliability.
The update to the power infrastructure is
underway and the power substation has been ordered and is scheduled
to be at site by the end of Q2 2018. The detailed engineering
and permitting is also underway. The power upgrade will
eliminate the use of diesel generated power at the mine site,
reducing operating costs.
Ana Paula Project
(100%-owned)
Definitive Feasibility Study (“DFS”)
Significant progress has been made at Ana Paula.
During the third quarter the DFS was initiated. The DFS will be
based on the updated mineral resource estimate and mine plan as
well as additional metallurgical testing. Following the completion
of the DFS which is expected in Q2 2018 the Company’s Board of
Directors will be able to make an investment decision to proceed
with construction of the project.
The additional metallurgical testwork is
underway and will continue until Q1 2018. The testwork includes a
geochemical analysis to track deportment of key impurities,
including arsenic, through the process and kinetic tests of leach
tails. It also includes additional variability testing, additional
grindability testing and ambient oxidization (“AOX”) optimization
tests for grind size, retention time, density and reagent
consumption. Piloting of the AOX circuit on various
domain/production composite is also planned for Q1 2018.
A field program of geological mapping, borehole
drilling, and seismic evaluation for the tailings, waste dump and
plant site areas is in progress to confirm the geotechnical and
hydrogeological design parameters for use in the DFS.
Key offsite infrastructure for the Project is
also being engineered to a higher level of detail in the DFS
including power, road access and water supply. Power to the site is
readily available from multiple power sources adjacent to the mine
site and a System Impact Study is in process and a Facilities Study
is planned to confirm the point of connection to grid power and the
costs of connection, respectively.
The site is currently accessed by a 7.5km
4-wheel drive road from the town of Cuetzala. For the initial
stages of project construction, this road will be upgraded to
improve road conditions and travel time. For the main project
construction access, two primary routes are being studied in
further detail to optimize both the cost of the road and ease of
access to the site for construction and operations materials, with
a decision expected in Q4 2017.
The site is estimated to have a negative water
balance and a hydrological study has identified a prospective water
source to the south west of the Project site. A drill program has
commenced to identify potential water supply bores within pumping
distance to the site.
Exploration
A $16.0 million underground decline and
exploration program was initiated during Q3 2017. The 1,200 meter
underground decline will be driven from a portal site located in
the adjacent valley from the proposed pit and approximately 400
meters from the proposed mill site. The underground decline is
expected to be completed in mid-2018 after which an underground
diamond drill program will commence. The drill program is expected
to confirm the continuity and shape of the high-grade gold
mineralization below the proposed pit that is hosted in the complex
breccia and it will also explore the gold mineralization
indications at depth hosted in hornfels skarn, typical of the
Guerrero Gold Belt. The underground drilling program proposed
includes 80 diamond drill holes (20,000 meters) and will include
geochemical sampling and assaying. In October 2017, GDI STRACON was
awarded the contract for the underground decline and JDS Energy and
Mining was engaged to manage the contract and underground mining
operation.
A $1.8 million surface exploration program was
also initiated during Q3 2017 to test a high priority target 100
metres north of the proposed open pit. Drilling is expected to
commence in Q1 2018. Regional exploration work is underway on the
56,000 hectare land package that includes an airborne magnetic
survey targeting further breccia or skarn targets. This work will
continue through 2018.
Land and permitting
Following the Environmental Impact Assessment
(“MIA”) approval by the Mexican regulator, SEMERNAT, in April 2017
the Company achieved another key permitting milestone with the
receipt of the Change of Land Use Permit (“ETJ”). The ETJ covers
the 370 hectares required for the open pit mine, waste storage,
process plant and the tailings storage facility. The land on which
the Company expects to construct the Ana Paula project is privately
owned land. The Company has acquired or signed 30-year lease terms
for approximately 75% of the land required for the Project and
expects to complete the balance of land acquisition and lease
agreements by the end of 2017.
Financing
Discussions on financing alternatives for the
Ana Paula project including project or corporate debt commenced
during quarter. It is expected that financing for approximately $90
million of the total estimated $137.2 million capital cost will be
arranged over the next six months, subject to conditions precedent
for drawing, in conjunction with the completion of the DFS. A
number of indicative proposals were received and the company is
moving forward with select proposals to pursue a financing package
with a balance of the lowest overall cost, the least restrictive
covenants and the flexibility to allow the Company to pursue its
growth strategy.
Please refer to the Company's financial
statements, related notes and accompanying Management Discussion
and Analysis ("MD&A") for a full review of the San Francisco
operation and Ana Paula project. This can be viewed on the
Company’s website at www.aliogold.com, on SEDAR at
www.sedar.com and EDGAR at www.sec.gov.
Third quarter conference call and webcast
details: |
Date: |
|
Thursday, November 9,
2017 |
Time: |
|
11:00am (EST) |
Toll Free (US and
Canada): |
|
(855) 427-9509 |
Toll Free (Outside
North America): |
|
(210) 229-8822 |
Conference ID: |
|
96572303 |
Webcast: |
|
https://edge.media-server.com/m6/p/6giz9ibu |
Replay: |
|
To be available at
http://www.aliogold.com |
About Alio Gold
Alio Gold is a growth oriented gold mining
company, focused on exploration, development and production in
Mexico. Its principal assets include its 100%-owned and
operating San Francisco Mine in Sonora, Mexico and its 100%-owned
development stage Ana Paula Project in Guerrero, Mexico. Located
within the highly prospective Guerrero Gold Belt on 56,000 hectares
of underexplored land the Ana Paula Project is a high-grade, high
margin project currently in the definitive feasibility stage. An
underground decline to provide access for an exploration drill
program has been initiated. The drill program will target the
continuation of the high-grade gold mineralization below the
proposed pit which has the potential to significantly enhance the
robust economics of the project. The Company also has a portfolio
of other exploration properties, all of which are located in
Mexico.
Footnotes:
1) |
Non-GAAP
Measure: All-in sustaining cost per gold ounceThe Company has
adopted an all-in sustaining cost per ounce on a by-product basis
performance measure which is calculated based on the guidance note
issued by the World Gold Council. Management uses this information
as an additional measure to evaluate the Company’s performance and
ability to generate cash.All-in sustaining costs on a by-product
basis include total production cash costs, corporate and
administrative expenses, sustaining capital expenditures and
accretion for site reclamation and closure costs. These reclamation
and closure costs represent the gradual unwinding of the discounted
liability to rehabilitate the area around the Mine at the end of
the mine life. The Company believes this measure to be
representative of the total costs associated with producing gold;
however, this performance measure has no standardized meaning. As
such, there are likely to be differences in the method of
computation when compared to similar measures presented by other
issuers.The following table provides a reconciliation of the all-in
sustaining cost per gold ounce on a by-product basis to the
consolidated financial statements: |
|
|
Three months ended Sept 30, |
Nine months ended Sept 30, |
|
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
Production costs |
$ |
17,523 |
|
$ |
18,588 |
|
$ |
52,956 |
|
$ |
55,877 |
|
Corporate and administrative expenses (1) |
|
1,640 |
|
|
1,415 |
|
|
4,713 |
|
|
5,267 |
|
Sustaining capital expenditures |
|
2,583 |
|
|
- |
|
|
6,943 |
|
|
- |
|
Accretion for site reclamation and closure |
|
45 |
|
|
15 |
|
|
173 |
|
|
45 |
|
Less: By-product silver credits |
|
(148 |
) |
|
(272 |
) |
|
(528 |
) |
|
(755 |
) |
All-in sustaining costs |
|
21,643 |
|
|
19,746 |
|
|
64,257 |
|
|
60,434 |
|
Divided by gold sold (ozs) |
|
19,601 |
|
|
23,327 |
|
|
67,144 |
|
|
74,468 |
|
All-in sustaining cost per gold ounce on a by-product
basis |
$ |
1,104 |
|
$ |
846 |
|
$ |
957 |
|
$ |
812 |
|
(1) Corporate and administrative expenses
adjusted for the three months and nine months ended Sept 30, 2017,
to remove termination benefits of $0.7 million. |
(2) Sustaining capital expenditures exclude project
capital. Project capital is defined by the Company as deferred
stripping costs determined using a life of phase strip ratio,
capital project expenditures related to power and crusher upgrades,
and drilling costs related to improvement of resource estimates.
During the three months and nine months ended September 30, 2017
the Company spent:• $3.7 million for deferred
stripping• $0.1 million for power and crusher
upgrades• $0.1 million related to the drilling
costs |
2) Non-GAAP Measure: Cash cost per gold ounce and cash cost per
gold ounce on a by-product basis
Cash cost per gold ounce and cash cost per gold
ounce on a by-product basis are non-GAAP performance measures that
management uses to assess the Company’s performance and its
expected future performance. The Company has included the non-GAAP
performance measures of cash cost per gold ounce and cash cost per
gold ounce on a by-product basis throughout this document. In the
gold mining industry, these are common performance measures but
they do not have any standardized meaning. As such, they are
unlikely to be comparable to similar measures presented by other
issuers.
Management believes that, in addition to
conventional measures prepared in accordance with GAAP, certain
investors use this information to evaluate the Company’s
performance and ability to generate cash flow. Accordingly,
presentation of these measures is to provide additional information
and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with GAAP.
The cash cost per gold ounce is calculated by
dividing the operating production costs by the total number of gold
ounces sold. The cash cost per gold ounce on a by-product basis is
calculated by deducting the by-product silver credits per gold
ounce sold from the cash cost per gold ounce. The following table
provides a reconciliation of the cash cost per gold ounce and cash
cost per gold ounce on a by-product basis to the consolidated
financial statements:
|
Three months ended Sept 30, |
Nine months ended Sept 30, |
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
Production costs |
$ |
17,523 |
|
$ |
18,588 |
|
$ |
52,956 |
|
$ |
55,877 |
|
Divided by gold sold (ozs) |
|
19,601 |
|
|
23,327 |
|
|
67,144 |
|
|
74,468 |
|
Cash cost per gold ounce |
|
894 |
|
|
797 |
|
|
789 |
|
|
750 |
|
Less: By-product silver credits per gold ounce (1) |
|
(8 |
) |
|
(12 |
) |
|
(8 |
) |
|
(10 |
) |
Cash cost per gold ounce on a by-product basis |
$ |
886 |
|
$ |
785 |
|
$ |
781 |
|
$ |
740 |
|
|
(1) Management determined that silver metal revenues,
when compared to gold metal revenues, are immaterial and therefore
considered a by-product of the production of gold. For the three
and nine months ended September 30, 2017, total by-product silver
credits were $0.1 million and $0.5 million, respectively (three and
nine months ended September 30, 2016 - $0.3 million and $0.8
million, respectively). |
For further details on the calculation of
production costs, refer to the notes to the consolidated financial
statements. Cash cost per gold ounce and cash cost per gold ounce
on a by-product basis are not necessarily indicative of earnings
from operations or cash flow from operations as determined under
GAAP. Other companies may calculate these measures differently.
3) Working capital is calculated by deducting current
liabilities from current assets
Cautionary Note Regarding
Forward-Looking StatementsCertain statements and
information contained in this news release constitute
“forward-looking statements” within the meaning of applicable U.S.
securities laws and “forward-looking information” within the
meaning of applicable Canadian securities laws, which we refer to
collectively as “forward-looking statements”. Forward-looking
statements are statements and information regarding possible
events, conditions or results of operations that are based upon
assumptions about future economic conditions and courses of action.
All statements and information other than statements of historical
fact may be forward-looking statements. In some cases,
forward-looking statements can be identified by the use of words
such as “seek”, “expect”, “anticipate”, “budget”, “plan”,
“estimate”, “continue”, “forecast”, “intend”, “believe”, “predict”,
“potential”, “target”, “may”, “could”, “would”, “might”, “will” and
similar words or phrases (including negative variations) suggesting
future outcomes or statements regarding an outlook.
Forward-looking statements in news release
herein by reference include, but are not limited to statements and
information regarding: the Company's future mining activities,
including mining capacity, recovery, cash costs, production and
mine life; the Company's reserves and resources estimates; the
Company’s exploration and development plans, including anticipated
costs and timing thereof; the Company’s plans for growth through
exploration activities, acquisitions or otherwise; and expectations
regarding future maintenance and capital expenditures, working
capital requirements, the availability of financing and future
effective tax rates. Such forward-looking statements are based on a
number of material factors and assumptions, including, but not
limited to: that contracted parties provide goods or services in a
timely manner, that no unusual geological or technical problems
occur, that plant and equipment function as anticipated and that
there is no material adverse change in the price of gold, costs
associated with production or recovery. Forward- looking statements
involve known and unknown risks, uncertainties and other factors
which may cause actual results, performance or achievements, or
industry results, to differ materially from those anticipated in
such forward-looking statements. The Company believes the
expectations reflected in such forward-looking statements are
reasonable, but no assurance can be given that these expectations
will prove to be correct and you are cautioned not to place undue
reliance on forward-looking statements contained herein.
Some of the risks and other factors which could
cause actual results to differ materially from those expressed in
the forward- looking statements contained in this news release
herein by reference include, but are not limited to: risks and
uncertainties relating to the interpretation of drill results, the
geology, grade and continuity of mineral deposits and conclusions
of economic evaluations; results of initial feasibility,
pre-feasibility and feasibility studies, and the possibility that
future exploration, development or mining results will not be
consistent with the Company’s expectations; risks relating to
possible variations in reserves, resources, grade, planned mining
dilution and ore loss, or recovery rates and changes in project
parameters as plans continue to be refined; mining and development
risks, including risks related to accidents, equipment breakdowns,
labour disputes (including work stoppages and strikes) or other
unanticipated difficulties with or interruptions in exploration and
development; the potential for delays in exploration or development
activities or the completion of feasibility studies; risks related
to the inherent uncertainty of production and cost estimates and
the potential for unexpected costs and expenses; risks related to
commodity price and foreign exchange rate fluctuations; the
uncertainty of profitability based upon the cyclical nature of the
industry in which the Company operates; risks related to failure to
obtain adequate financing on a timely basis and on acceptable terms
or delays in obtaining governmental or local community approvals or
in the completion of development or construction activities; risks
related to environmental regulation and liability; political and
regulatory risks associated with mining and exploration; risks
related to the uncertain global economic environment; and other
factors contained in the section entitled “Risks and Uncertainties”
per above.
Although the Company has attempted to identify
important factors that could cause actual results or events to
differ materially from those described in the forward-looking
statements, you are cautioned that this list is not exhaustive and
there may be other factors that the Company has not identified.
Furthermore, the Company undertakes no obligation to update or
revise any forward-looking statements included in, or incorporated
by reference in, this news release if these beliefs, estimates and
opinions or other circumstances should change, except as otherwise
required by applicable law.
For further information, please
contact:
Lynette GouldVice President, Investor
Relations604-638-8976lynette.gould@aliogold.com
Neither the TSX nor its Regulation Services
Provider (as that term is defined in the policies of the TSX) nor
the New York Stock Exchange MKT accepts responsibility for the
adequacy or accuracy of this news release.
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