Island drives Richmont through Q2

Richmont Mines’ (TSX: RIC; NYSE-MKT: RIC) Island Gold mine near Wawa, Ont., recorded higher production and lower costs in the second quarter, offsetting a poor run at the Beaufor gold mine in Quebec.

Company-wide gold production came in at 23,320 oz., roughly 11% below the same period last year, largely due to the depleted stockpile at the Monique mine in Quebec.

Island Gold delivered 80% of the total output, or 18,617 oz., up 24% from a year ago. The higher production came from record underground and mill productivity, as well as positive grade and tonne reconciliation over the December 2015 reserve model.

Richmont Mines’ Island Gold mine near Wawa, Ontario, which produced 18,617 oz. gold in the second quarter this year.  Credit: Richmont Mines.

Cash costs for the Island Gold mine were $766 per oz., or 20% lower than 2015’s second quarter, and below the consolidated cash cost guidance of $930 to $1,000 per oz. gold.

“The Island Gold cost for the quarter continues to outperform guidance, contributing to company-wide, below guidance cash costs of $903 an oz., or US$701 an oz.,” Renaud Adams, the company’s CEO, said on a conference call.

All-in sustaining costs at Island Gold were $1,038 per oz., down $269. This brought the consolidated all-in sustaining costs to $1,330 per oz., within Richmont’s guidance of $1,275 to $1,390.

Meanwhile, the Beaufor gold mine delivered 4,703 oz., compared to 7,082 oz. a year ago. Cash costs totalled $1,486 per oz., with all-in sustaining costs of $1,899 per oz.

“It’s fair to say it’s another somewhat difficult quarter at Beaufor, due to the underperforming grades of the remaining vein awaiting the stope mining in the new, developed Q zone planned for Q3,” Adams said.

Once mining at the Q zone starts, Beaufor’s production should increase, and lower costs in the fourth quarter, Adams adds.

Quarterly revenue was $40.6 million, in line with the earlier year, as higher gold prices compensated for a 10% decline in sales. Richmont sold 24,888 oz. at an average realized gold price of $1,628 per oz. gold.

Earnings were $2.7 million, or 4¢ per share, compared to 5¢ per share in the earlier year, despite higher exploration costs at Island Gold.

Adjusted earnings were 7¢ per share, missing analysts’ average expectations by a cent, BMO analyst Brian Quast writes.

Adjusted cash flow per share was 19¢, slightly missing analysts’ 22¢ forecasts. Despite the miss, analysts applauded Island Gold’s production growth, exploration potential and cash generation.

Given Island Gold’s superb year-to-date performance, Richmont expects to “meet or exceed” the upper of its previous production guidance of between 87,000 and 97,000 oz., and the low end of its cost guidance.

An updated guidance should be out in mid-September, after a three-week electrical upgrade at the Island Gold mill and stope mining at Beaufor’s Q zone. Both should happen in August.

Based on the positive phase-one exploration program at Island Gold, which indicated the potential to expand production and increase mine life both laterally above the 860-metre level and below the 1,000-metre level, Richmont kicked off phase two exploration drilling in July.

Adams notes that the objective of the current program is to “expand the existing resource inventory laterally along strike — mainly to the east of the main deposit — with a goal of extending the mine life above the 1,000-metre level that could eventually support a potential expansion scenario currently under review.”

A preliminary economic assessment on that scenario is due in the fourth quarter.

Phase two includes up to 142,000 metres of drilling over the next 18 to 24 months, where Richmont should complete 39,000 metres in the second half of 2016.

Haywood Securities analyst Kerry Smith projects this program could deliver up to 2 million oz. in resources.

During the second quarter, Richmont increased its cash balance to $95.5 million, which includes $29 million of proceeds raised through a bought deal at $10.40 per share in June. It has $11.1 million in total debt.

The company reported free cash flow of $3 million, compared to $1 million in the first quarter of 2015, Smith says, adding the company could internally fund its exploration and development.

The analyst says Island Gold is well-positioned for 2017 and beyond owing to its “tremendous exploration upside, a mill with capacity for expansion, current development opening new stoping areas with better grades, and a strong Canadian gold price,” which is over $1,700.

Smith has a $20 price target and a “buy” on the stock. BMO’s Quast has kept his “market perform” rating, while raising his target price by a dollar to $14 per share.

Richmont closed Aug. 9 at $13.48, down 44¢ since releasing its second-quarter financials a day earlier.