A disappointing kickoff to the start of operations at the Magino Mine has caused some downstream financial issues for Argonaut Gold.
The slower-than-anticipated ramp up at the Dubreuilville-area mine has placed the Toronto gold company’s “balance sheet under pressure," according to company president Richard Young.
Paraded as Argonaut’s new flagship mine, Magino entered commercial production in early November.
Now saddled with $179 million in debt, company management said in a Nov. 14 web call on its third-quarter performance that they need additional capital and are talking to their lenders about refinancing a loan used for building the mine.
The open-pit mine was carved out on the site of a former underground mine of the same name, developed after the First World War and then ran sporadically over the decades.
During the run-up to production this year, Argonaut has faced a slew of start-up issues.
Company management hasn’t been happy with the pace of gold production, the grades, and the way it’s been mining around the old mine workings, blaming it on “poor execution on short range plans.”
The result is Magino won’t hit its year-end gold target of between 72,000 to 81,000 ounces.
Computer software glitches contributed to 20 days of unplanned downtime in September during mill commissioning. Since then, senior executives said it’s been smooth sailing. Management believes the plant is capable of improving on its 10,000-tonne-per-day capacity.
There's been staff shortages at Magino and there were issues with the design of the beds in the haul trucks, resulting in lower than planned haulage numbers.
All told, it’s resulted in a 50 per cent less material moved this year and a 15 per cent lower average grade mined.
But Young and Chief Operating Officer Marc Leduc repeatedly emphasized during the web call that these issues are “fixable," and will be over the next three to six months.
They are expecting higher grades through the mill by December and better productivity as the operations team figures out how to mine the ore body around Magino’s old underground workings.
On the financing side, Young said they’re speaking with their lenders to obtain waivers on certain financial covenants associated with their debt while they go on the hunt to raise more cash.
Earlier this month, Argonaut said they planned to sell a one per cent net smelter return royalty (NSR) on Magino to Franco Nevada and some non-core royalty holdings in Canada and Mexico for $29.5 million. Franco Nevada will hold an aggregate 3.0 per cent NSR on Magino.
The cost of finish construction at Magino has been steep.
Last February, Argonaut said the final price tag for the mine construction would top out at $980 million, way up from its 2021 estimate of $510 million.
Despite the headaches, Argonaut has high hopes for Magino’s open-ended potential.
As operations crank up, drilling continues to expand the gold resource to add some longevity to Magino’s 19-year mine life.
The company has four drill rigs carrying out 60,000 metres of drilling through to the middle of next year. Management expects to add between a half million to one million ounces to their gold reserves.
At the same time, engineering work is being done to evaluate expanding the processing mill to a 17,500-tonne to 20,000-tonne per day operation. The goal is to boost gold production from 150,000 ounces a year to 200,000 to 250,000 ounces.