Allied Nevada misses 2014 targets, pursues Hycroft mill funding

Allied Nevada Gold (TSX: ANV; NYSE-MKT: ANV) saw more gold and silver produced and sold in 2014 from its flagship Hycroft mine, near Winnemucca, Nev., but still missed its annual guidance. 

The heap-leach operation churned out 214,345 oz. gold and 1.82 million oz. silver, up 12% and 106% from a year ago. The production boost resulted from higher mining rates and more ore placed on the leach pads, combined with the increased processing capacity of the North Merrill-Crowe plant. 

This led to a 19% year-over-year jump in gold sales to 216,937 oz. and a 115% increase in silver sales to 1.84 million oz. However, it missed its revised sales guidance of 220,000 to 230,000 oz. gold and 1.9 million to 2 million oz. silver.

“While we did not hit our original production and sales targets for the year, we believe we have learned from our 2014 efforts and benefited from our focus on costs,” Randy Buffington, the company’s president and CEO, said in a prepared statement.

Last year, Allied published positive prefeasibility and feasibility studies for building a mill at Hycroft, so it can start processing the mine’s large sulphide resource. The feasibility study looked at a two-phase expansion plan for the mill, with initial throughput starting at 60,000 tons per day (54,400 tonnes per day) before expanding to 120,000 tons per day. Estimated start-up costs totalled US$1.4 billion.

In late November, Allied improved the costs for phase one by 18% to US$768 million, from US$934.5 million previously, by deferring infrastructure and components until the second phase. Detailed costs for the optimized phase one should be out later this year, while throughput rates should remain the same.

Allied expects annual sales for the combined heap leach and single line mill during the first five years to average 340,000 oz. gold and 15.1 million oz. silver at adjusted cash costs of between US$575 and US$600 per oz. gold. This is a 30% improvement from the adjusted costs of US$856 per oz. gold in the third quarter of 2014, excluding the US$71-million writedown of production inventories. 

Allied anticipates the single line mill could operate by 2017, if it secures financing in time.

In January 2015, the junior noted it has received financing interests in the Hycroft mill project, but has not scored a deal, partly due to the volatile market and lower commodity prices in 2014. To keep afloat, Allied, which had US$5.8 million in cash and equivalents at the end of last September, raised US$22 million in a public offering in December.

BMO analyst Brian Quast, who previously said that the start-up capital for the mill was beyond Allied’s financial capacity, notes he wasn’t surprised that the firm “was unable to find a partner or other source of financing for the proposed mill project.” He views Hycroft as a heap leach-only operation and ascribes no value to the proposed mill.

Allied is set to release its fourth quarter and full-year 2014 financials at the end of February, along with its 2015 guidance. The company forecasts operating results that are similar to 2014.

“Despite the recent increase in precious metal prices, BMO Research does not expect the company to generate any meaningful free cash flow in 2015,” Quast writes. He rates the stock as an “underperform,” with no target price. Allied shares closed at $1.11, up 10% for the year. The stock lost 73% of its value in 2014.