Allied Nevada hits the comeback trail

Allied Nevada Gold (TSX: ANV; NYSE-MKT: ANV) has been one of the more challenged operators in the gold sector in recent years, but its latest production results show a company on the comeback trail.

The company’s flagship asset — the Hycroft mine, which sits 86 km west of Winnemucca, Nev. — produced 60,114 oz. gold for the first quarter. This amount meant Allied beat its 55,000 to 60,000 oz. guidance and topped BMO Capital Markets analyst Brian Quast’s forecast by 9%. Quast was expecting production of 55,000 oz. gold and 396,000 oz. silver.

Silver production for the quarter came in at 413,000 oz., while metal sales came in at 59,000 oz. gold and 406,000 oz. silver. Tonnage, grade or recovery data was not released for the period but will be included in the financial results, which are slated for early May.

The figures that did come out were all the more impressive because Allied had to deal with minor issues at the plant, such as January’s reduced fluid flow through the Merrill-Crowe plant, which has since been resolved.

Scotiabank analyst Trevor Turnbull said the production results were ‘very good,’ especially because they came ahead of a new crusher that will bring more benefits. 

The gyratory crusher — which is set to come online in the second quarter — should bolster results in the year’s second half.

The timeline for the commissioning of the crusher shows a delay from the previous target of the end of 2013. But once in operation, the upgrade is expected to not only improve gold and silver recoveries but also increase the silver-to-gold ratio.

Another catalyst for the stock could be the imminent release of a prefeasibility study on Hycroft’s sulphides, which will shed light on the economics of a smaller or phased approach to the Hycroft mill expansion.

The company’s stock has been under pressure since trading close to the $40 mark in October 2012, and the financing worries that clouded investor’s enthusiasm for the stock still hangs over the story.

“BMO Research continues to expect capital requirements to be significant and likely beyond the market’s appetite to finance,” Quast wrote in his research note. “Consequently, BMO Research is modelling the Hycroft mine under a heap leach-only scenario.”

Quast has Allied rates shares as ‘underperform,’ with a US$4.09 price target. 

Scotiabank’s Turnbull, however, sees evidence that the clouds may be clearing.

“We believe Allied Nevada will need to expand its line of credit by at least $25 million to meet its capital spending plans this year,” Turnbull wrote in his research note. “Thereafter, near-term liquidity should not be an issue. However, repayment of long-term debt and financing of the sulphide project remain unresolved, but easier to manage with higher prices.”

Turnbull rates Allied as a “sector performer,” with a US$4-per-share price target.

In Toronto on April 9 — the day after production results were released — the company’s stock was off 2%, or 10¢ to $4.40, on 110,000 shares traded.