Tracking Risk, Boosting ProductionThu, 10/17/2019 - 14:07
Q: What is Argonaut Gold’s strategy to manage and optimize its portfolio?
A: In Mexico, we have two development projects that we are trying to advance toward a production decision. At one, we are revising the needed permits and hopefully, these will be granted by the end of 2019. For the other project, we expect to be able to submit the permits later this year.
Our goal is to maximize our portfolio by advancing and de-risking our development assets. Regarding the divestment trend that is taking place to optimize a mining company’s portfolio, at Argonaut Gold we like to see how our assets can best serve the company and our shareholders. If we could swap out an asset to advance another asset, and this makes more sense for our shareholders, we would certainly be open to that.
Q: How does the company manage the country risk of operating in Mexico?
A: Every project has different associated risks. Those can be related to operations, construction, security and the relationship with local communities. I believe those are the inherited risks that we are used to managing, but there are also external pressures. These are related to the price of gold, silver and fuel, just to name a few. Some companies may look to diversify their portfolio or to be centralized in an area and look to have multiple operations. We track risk at each individual operation, applying a risk register that can change with each project.
Q: What factors are boosting the company’s guidance?
A: In 2017, we stepped back to look at where the company stood and we identified different valuations for companies and how they are relevant for investors. We were operating at a 120,000oz per annum target rate and that put us in a lower relevance and valuation class. As we looked at companies in the next valuation level, it was clear there was a jump in valuation at around 200,000oz per annum. This motivated us to target a higher production amount. I am happy to report that in 4Q18, the team delivered over 50,000oz. If we annualize that, we are already at 200,000oz per annum. Our 2019 guidance is that we will produce between 200,000oz and 215,000oz.
Q: What is the company’s strategy for success?
A: Last year, we built the San Agustin operation with a processing capacity of around 16,700t/d. Because of the way we were running the mine, whether it was fragmentation in the pit or the crushing circuit itself, we were able to achieve excess capacity to over 20,000t/d. We were able to do that through operational improvements.
For instance, by achieving maximum fragmentation through electronic blasting instead of executing a single explosion, we enhanced crushing throughput by reducing the rock size. It is the attention to detail on many different levels that leads to greater efficiency and a team effort across multiple areas.
Q: What are Argonaut Gold’s expectations for its El Castillo Complex?
A: I think the addition of the San Agustin mine to the El Castillo Complex was dramatic for the company. It is going to put us at a higher operating level by producing 150,000oz a year from the complex. When you think about this amount of production, it is a pretty good-sized asset as our company does not run large mines. San Agustin has a longer life and will play a substantial role for the company. It was a good cash generator in year one, which was 2018. We will see what happens in the seventh or eighth year but it is a very promising asset. 2018 was a transformational year for the company in terms of record-setting production and the El Castillo Complex, particularly the San Agustin mine, outperformed our expectations.