Superior Gold Is in Trouble Right Now, but Improvements Are Possible

Superior Gold [stock_market_widget type="inline" template="generic" color="default" assets="SGI.V" markup="(TSXV: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] stock came crashing to the ground after the company’s second-quarter results failed to pass muster. The miner missed estimates on both the top and bottom lines, though not by huge margins, and this sent its stock packing. But is the weakness at Superior an opportunity to buy more shares, or should investors stay away fearing more downside? Let’s find out.

What Hurt Superior Last Quarter?

Superior Gold stock rose on positive gold price sentiment this year, but its operational performance has not been up to the mark. The company produced 23,849 ounces of gold last quarter, which was down from the year-ago period’s output of 25,608 ounces.

However, the lower production was masked by an increase in prices to some extent. Superior Gold clocked an average realized gold price of $1,320 an ounce during the quarter, up from $1,303 an ounce in the year-ago quarter. Still, the company’s revenue fell to $31.6 million as compared to $33.6 million a year ago.

But the biggest problem for Superior was the cost profile. The company’s cash costs per ounce of gold increased more than 20% year over year to $1,222 an ounce last quarter as compared to $1,013 an ounce a year ago.

Its all-in sustaining costs also increased to $1,293 an ounce from $1,098 an ounce in the prior-year period. As a result of this increase in the cost profile, Superior Gold posted an operating loss of $2.29 million as compared to a profit of $1.56 million in the prior-year period.

The company’s adjusted net loss came in at $1.9 million during the quarter as compared to a profit of $654,000 a year ago. So, Superior Gold is not well-equipped to take advantage of an improvement in gold prices.

The Operational Problems

Superior Gold struggled on account of a weak grade profile last quarter.

The company witnessed a grade of 2.0 grams per ton during the second quarter, down from 2.3 g/t in the prior-year period. Also, Superior’s gold recovery fell to 87% during the quarter as compared to 90% in the year-ago period.

A combination of lower grades and weaker recoveries hurt Superior Gold badly last quarter, as evident from the spiking costs and the swing towards a loss. According to the company’s CFO:

The reduction in ounces sold was due to fewer ounces being produced as a result of the lower grade ore milled from the contribution from the Hermes open pit, which was offset in part by an increase in the total tonnes milled for the quarter.

However, Superior Gold is calling for an improvement in its operational performance in the future, driven by an improvement in its grade profile. Management said:

During the quarter, our stope grade averaged 3.36 grams of gold per tonne, which is the highest level we’ve seen at the underground operations since 2017.

Superior management also pointed out that its underground stop grade improved 33% last quarter, while development grade and mill grade increased to the tune of 10% and 20%, respectively. So, investors shouldn’t lose all hope in Superior Gold stock just yet, though it makes sense to wait for the improvements to actually arrive before taking a call on the stock.

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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