Premier Gold’s 2018 Production Indicates Near-Term Trouble

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Mine Exploration Work Hurts Production

  • Premier Gold (TSX: ) saw a steep decline in its gold and silver production in 2018 thanks to the development and exploration work going on at the company’s South Arturo and Mercedes mines.
  • The company’s South Arturo mine exceeded the annual production guidance thanks to management’s decision of ramping up processing of the Phase 2 stockpile.
  • Production at Premier Gold’s Mercedes mine was in line with expectations during the second half of the year. First half production at the mine had taken a hit on account of changes in geological interpretations, which probably means that the ore bodies mined were of a lower grade than what Premier had anticipated.
Learn more about the importance of ore grades and exploration results here.

Premier’s Gold Production Costs Balloon

  • Premier produced 89,699 ounces of gold and 321,814 ounces of silver in 2018. The Mercedes mine accounted for 68,719 ounces of gold production for the year, with the remaining coming from South Arturo.
  • The company originally expected the Mercedes mine to drive the majority of its production for the year, guided for 80,000-85,000 ounces of gold production at the mine. South Arturo, on the other hand, was expected to produce just 5,000-10,000 ounces of gold in 2018.
  • Premier didn’t provide an update on the costs incurred for the entire year, and the company also skipped on providing 2019 production estimates.
  • Premier had originally guided for $690-$740 in cash costs per ounce and $800-$850 in all-in sustaining costs per ounce. However, it looks likely they will exceed that forecast as the company’s all-in sustaining costs per ounce of gold were already at $956 an ounce in the first nine months of 2018, while cash costs were at $826 an ounce.
  • Premier’s investors should prepare themselves for a massive drop in the top and bottom lines when results are out on March 7.

Expect Short-term Losses Until New Production Is Online

  • It is evident that production issues have hamstrung Premier Gold big time. The company had swung to a loss in the third quarter as revenue fell 44% annually, and the same story is expected to repeat when results are out.
  • However, Premier’s 2018 exploration update indicates that the company has been making progress to boost gold production at Mercedes and South Arturo.
  • Premier has expanded high-grade deposits at Mercedes and accessed high-grade intercepts at South Arturo. Additionally, it has struck a joint venture agreement with Barrick Gold at the McCoy-Cove mine where extremely high grades of gold and silver are expected after the recent discovery of multiple areas with high-grade mineralization (See more on Barrick Gold’s 2018 production here).
  • Premier should eventually witness an increase in its gold and silver output going forward and also reduce its cost profile on the back of higher grade ore deposits.
  • It remains to be seen when its exploration activities will start bearing fruit, so investors will have to wait until the next set of results to get a clearer idea.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan
Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.

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