Amerigo Resources Q2 2023 Results – Industry Leading 8% Dividend Yield Well Supported

Amerigo Resources Ltd. (TSX:ARG) (OTCQX:ARREF) reported financial results for the three months ended June 30, 2023.

The second quarter results were expected to be lower than normal, as Amerigo had indicated their annual 8-day maintenance shutdown would take in the quarter. However, Amerigo also faced an additional 8 days of lost production from an unanticipated power outage due to record flooding in Chile. The impact of the power outage will also be felt in Q3 with production operating at half capacity for most of July.

Even with these one-time headwinds, Amerigo confirmed the company’s quarterly dividend is intact, continuing to offer investors an attractive 7.9% dividend yield, one of the highest in the copper universe.

With power restored and full production back online as of July 22nd, Amerigo remains well positioned to support the dividend going forward in our view.

Amerigo is one of the most unique ways to gain exposure to rising copper prices, as the dividend essentially pays you to wait while the path of global economic growth in 2023 and 2024 becomes clearer.

We at Capital10x are bullish on copper as demand continues to outpace supply and have identified Amerigo as one of the few copper stocks offering both operational leverage to copper and a best in class dividend yield.

Financial Review

Amerigo reported US$32 million revenue in the second quarter, down only 5% year over year including  the operational downtime from the power outage.

Copper production of 13.6 million pounds, declined 9% from the same quarter in 2022 as a consequence of the days lost to the power outage. Higher Molybdenum revenue helped offset the impact in revenue from lower copper production and lower copper prices.

Amerigo Q2 2023 Financial Highlights

Source: Amerigo

The net loss of $3.8 million was $1.3 million less than the same quarter in 2022, a solid result given lower copper prices as well.

$1.7 million of EBITDA in the quarter was negatively impacted by operational downtime, but is expected to rebound as we go through the rest of the year and the power shutdown falls out of earnings results.

Q2 2023 Income Statement

Source: Amerigo

Amerigo ended the quarter with $31.7 million of cash, driven mainly by $5.7 million of cash spent on paying down debt and making lease payments.

Debt now sits at $19.7 million against $35.9 million of unrestricted and restricted cash.

In the second quarter, Amerigo paid quarterly dividends of $3.7 million and continued to buy back stock, purchasing $757,000 to retire 666,128 shares. Amerigo has successfully used  surplus cash for buybacks in addition to the dividend over the last two years to retire more than 11% of their shares outstanding.

Amerigo has the financial strength to support a high dividend payout through unanticipated operational issues, like July’s blackout.

Q2 2023 Balance Sheet

Bottom Line

Amerigo continues to offer investors a market leading dividend yield, supported by more cash than debt and a management team that has shown they are prepared to manage through the unanticipated operational issues that are inevitable in the mining business.

We are happy to collect a well-supported 8% dividend yield while waiting for recession fears to recede and investors refocus on the looming electrification-driven copper shortage.

We believe Amerigo’s dividend yield can fall to at least 5% over time, still double the copper peer group, as investors gain confidence in the dividend’s sustainability.

A 5% dividend yield equates to 50% upside potential in the stock even if copper prices remain rangebound between $3.75-$4.00/lb

Amerigo Resources is a market awareness client of Capital 10X. For more information, including potential conflicts of interest please see our Content Disclaimer.


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