Richmont’s lacklustre Q2 results

Richmont Mines (RIC-T, RIC-X) had a difficult second quarter, posting a net loss of $30.9 million, or 92¢ per share, which included the previously released $28-million after-tax writedown on its Francoeur mine in Quebec.

“The second quarter has been a challenging one for Richmont, and our share price performance has reflected this,” Paul Carmel, the company’s president and CEO, said in a statement.

During the three months, the Montreal-based producer saw its share price drop 39% to $4.73, down from the first quarter’s $7.77 close.

“The overall downward trend in the stock market, particularly for gold producers, has also been an important contributing factor to our weak share price,” Carmel adds.

However, the miner’s shares continued to descend to the $3 range in July, after it announced that the reserve and resource estimates at Francoeur were lower than previously thought.

As a result, it trimmed the reserve estimate to 504,687 tonnes grading 4.78 grams gold for 77,580 oz. gold, versus 615,664 tonnes grading 6.91 grams gold for 136,749 oz. previously. This led the junior to lower the mine’s annual production guidance to 20,000 oz., and consequently take a $33.2-million, or $28-million after-tax writedown on the asset.

Francoeur, located near Rouyn-Noranda, Que., reached commercial production on Aug. 1, and is expected to produce 5,000 oz. gold for the year and 20,000 oz. in 2013.

Along with Francoeur, the company has two other gold mines in production: Beaufor near Val-d’Or, Que., and Island Gold close to Wawa, Ont.

Both mines suffered from lower production and grades, and higher cash costs during the second quarter. Production at Beaufor fell 59% to 3,896 oz. compared to the same quarter a year ago, while Island Gold produced 10,814 oz., or slightly below last year’s output. Together the mines generated 14,710 oz., down from 20,755 oz. a year earlier.

Commenting on the operational performance, Carmel says the company had better results from Beaufor in 2011 because it was mining high-grade portions of several veins at the mine, whereas in the first six months of this year it mined lower-grade sections, which translated in fewer ounces and higher cash costs.

While second-quarter output at Island Gold was within expectations, Carmel says “year-to-date production is trending lower than anticipated,” and he expects 45,000 to 50,000 oz. from the mine instead of 50,000 to 55,000 oz.

Second-quarter gold sales dropped by 27% to 14,611 oz., while the average price increased by 11% to $1,616 per oz. compared to the same quarter last year. The fewer ounces attributed to revenues dropping 19% to $23.6 million, while the average cash cost per ounce gold jumped 43% to $1,097.

Richmont says the increase was driven by lower recovered grades at Island Gold and Beaufor. For the quarter, recovered grades at Island Gold fell 12% to 5.25 grams gold and 53% to 4.37 grams gold at Beaufor compared to a year ago.  

Despite the poor quarterly numbers, Richmont says that results from the 55,000-metre exploration program on its Wasamac gold project have been encouraging. It adds it will be focusing on the project’s Main zone — which looks the most promising — and has three drills operating in the area.

A preliminary economic assessment envisioned the Quebec-based project as an underground bulk-mining operation, producing 140,000 oz. gold a year over 14 years. While the study showed that Wasamac looked viable at higher gold prices, it suggested more work and technical studies were required to bolster economics.

The Montreal-based junior ended June with $55.5 million in cash. It has reaffirmed its 2012 production guidance of 65,000 to 75,000 oz. gold, noting that while the expected output at Island Gold was lowered by 5,000 oz., the new Francoeur mine should make up for the revision during the year.

During trading after the results were released, Richmont’s shares  were down 2.5% to $3.53.