Junior Gold Producers' Q1/13 Earnings Show Profitability


"Junior gold producers are still, by and large, not in a panic about the current price of gold, though for some it puts the pressure on."


For many junior gold producers the red zone, where all-in cash costs exceed the price of gold, remains a ways away. The gold price, which averaged in the mid $1,400 per ounce (oz) over the past month and a half, is not low enough to catch most juniors down too deep.

That is, if junior gold miners were submarines, then their captains have yet to sound alarm, making for panic scenes familiar to audiences of naval war movies: the creaking iron and steel; the popping rivets, the hissing sea water as seams buckle under pressure.

It is still quite the opposite situation for many junior gold miners. At current gold prices, still high in terms of recent decades, many of them continue to spin off cash from comfortable margins. Among others, a couple notable net income generators during the first quarter this year were Teranga Gold and B2Gold. Teranga was up from a loss last year, reporting $45 million ($45M) in net income on $114M in revenue. Meanwhile, B2Gold reported a $63M net income (adjusted=$40M) on revenue of $155M (see more on junior gold quarterlies below).

To be sure both the lower price of gold and stagnant or worsening production costs are pinching margins. But for most this double whammy hasn't been terrible enough to force crews to sound the claxons. Management directives, more than ever, are about trimming costs, not avoiding near disaster.

Still, there are those flirting dangerously close to the red.

For example: Gran Colombia's all-in cash costs were $1,534/oz in the first quarter this year and Veris' were $1,509/oz. These all-in cash costs squeaked in below the average spot price of gold in the first quarter, which was for the most part above $1,600/oz during January, February and March. But the same all-in figures are higher than the average price of gold subsequent to the first quarter's end.

As noted in these pages last week, the going rate for gold in the past month and a half has been under $1,500/oz, averaging about $1,485/oz in April and, so far, $1,451/oz in May.

See: This Week in Junior Gold Quarterlies有ower Gold Price Weighs

Meaning: Unless the price of gold turns around over the next month in a major way, gold miners will realize less on gold sales in the second quarter than the first. This pressure on margins will, of course, be felt across the board, but it will have more critical implications on cash flow, or lack thereof, to higher cost producers. Thus the need for Gran Colombia and Veris to make good on plans to lower persistently high costs if they don't want to cross over into the red zone (where all-in costs exceed the price of gold.)

Gran Colombia and Veris have both said that's the direction they are taking. Gran Colombia said it expected all-in cash costs to trend down to $1,280/oz in 2013. To that end it noted cash costs in March were already down by a fair bit. As for Veris, it said to expect positive cash flows later in the year on what it said are traditionally stronger second and third quarters for it.

Indeed, with gold around $1,405/oz at presstime, the pressure to do better in the second quarter and remain above crush depth熔r at least not in it for too long擁s on.

More Junior Gold Quarterlies, with Comparisons to the Same Quarter a Year Ago

B2Gold用roduces 95,042 oz gold, 79,661 oz attributable, up from 34,602 oz gold. Operating cash costs are $722 an ounce. Net income is $63M (adjusted=$40M) and revenue is $155M. It has $121M in cash and $16.8M long-term debt.

Teranga Gold用roduces 68,301 oz gold, up 63 percent. Total cash costs are $535 per ounce, down 18 percent. It reports $45M net income, on $114M in revenue, versus $1M net loss a year ago. It becomes hedge free.

Semafo用roduces 59,700 oz gold, down two percent. Total cash cost are $790 per ounce. It records a $7.3M net loss, including $35M non-cash impairment, down from $28M net income a year ago. Revenues are $106M.

Rio Alto Mining用roduces 36,533 oz gold, down from 59,918 oz gold a year ago. It reports total production cash cost of $1,190 per ounce gold. Net income is $8M down from $33M a year ago. Revenues are $58M. Cash at hand is $47M, up from $38M a year ago. It reported $3.3M in long term debt.

Veris Gold (TSX-V: VG; formerly Yukon-Nevada Gold)用roduces 30,461 oz gold up from 13,099 oz gold a year ago. All-in cash costs are $1,509 cash cost (no equivalent a year ago). It records $6.5M net loss down from $7.8M net loss a year ago. Revenues are $45M. Cash is $7.1M, also with $52.9M restricted cash mostly for reclamation. It reports $78.9M negative working capital and discussions to restructure gold forward sales contracts.

Gran Colombia Gold用roduces 24,350 oz gold, down from 26,620 oz gold in the same quarter a year ago. Cash costs are $1,315 an ounce; all-in cash costs are $1,534 an ounce. It reports $9.5M net income on $38M in revenue. It holds $1.9M in cash with $77M set aside for expansion plans, interest payments. It reports $172M debt. March cash costs lower than average at $1,164/oz, it notes.

Lake Shore Gold用roduces 23,200 oz gold, up from 16,680 oz gold a year ago. Cash operating costs are $982 per ounce gold down from $1,046. Net loss is $600,000. It reports CA$52M in cash, with $100M in long-term debt (end 2012). It also draws $35M from credit line in first quarter.

Kip Keen

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