Hello Montanore,
I am still holding HL. At least my other one is shining bright. But HL will have it's day in the sun, gulp I hope.
The Northern Miner, 2/26/2009
Richmont shows the way in tough times
While other junior miners continue to be under-cut by economic uncertainty, Richmont Mines' (RIC-T, RIC-N) fourth quarter results show a company being rewarded for its shrewd moves.
In December of last year Richmont closed a friendly takeover of its joint venture partner, Patricia Mining, at the high grade Island gold mine 50-km north of Wawa Ont.
The timing of the deal was perfect.
Richmont swooped when the mine wasn't generating the anticipated cash flows that Patricia needed to meet its commitments. Richmont got Patricia's 45% interest for just $17 million right around the time that many of the issues at the mine were being sorted out.
For the quarter the mine processed 47,898 tonnes of ore at an average grade of 9.04 grams per tonne, and 13,915 oz. of gold were sold at an average price of US$890 per oz.
That compares well with the previous year's fourth quarter when 35,202 tonnes of ore were processed at an average recovered grade of 6.45 grams per tonne, and just 7,302 oz of gold were sold at an average price of US$726 per oz.
Richmont's president and chief executive, Martin Rivard, says while the company had been anticipating mining higher grades in the quarter, it benefited from unforeseen events too.
"What was unplanned was the workforce issue improving quite a bit with base metal mines closing," Rivard says.
He explains that since taking over as operator of the project in 2005 Richmont has been dogged by staffing issues --- issues that it was unable to resolve until the downturn in the base metals prices freed up skilled miners.
"Execution is a key thing at Island," he says. "It's not a large operation so you need experienced miners to get the production levels."
Coupled with improved production was good news on the cost side as cash costs decreased to US$546 from US$621 in last year's fourth quarter.
The rejuvenation of the mine helped bolster overall company revenue for the quarter to $22.9 million, up 122% from the same period last year, with full year revenue up 85% to $70.6 million.
Company wide Richmont sold 70,945 oz. of gold at an average price of US$876 per oz. That compares will with the 46,193 oz it sold for all of 2007 at an average price of US$699 per oz.
Most importantly the stronger revenue wasn't completely eroded by higher costs and write-downs as it has been for so many other miners.
Revenue managed to flow down to the bottom line bringing net income in at $2.1 million, or 9¢ per share, compared with a net loss of $1 million, or 3¢ per share for the year previous.
That isn't to say, however, that the company escaped the quarter entirely unscathed.
Operating costs for the quarter came in at $13 million compared with just $6.5 million in the same period the prior year.
Rivard attributes the higher operating costs to its Beaufor mine in Quebec where increased definition drilling and higher milling costs - due to prior high steel and zinc prices - hurt the bottom line.
But with zinc and steel prices now lower, it is only a matter of time before those reduced costs make their way into Richmont's milling cost.
"Unfortunately it takes a little bit more time getting the reductions," he says. "We don't get reductions as fast we get increases."
He anticipates that such downward re-pricing of inputs will flow through to the company in the second quarter of this year.
In the meantime, increased production and lower costs overall -- the average cash cost overall came down to US$550 per oz. of gold from US$556 per - managed to offset the higher operating costs.
But the solid results on the production side causing Richmont to neglect its exploration program.
The company upped its exploration and project evaluation expenditures to $2.4 million in the fourth quarter from $1.3 million for the same quarter the year previous.
Of that amount, $700,000 was spent on exploration at its Beaufor Mine; $900,000 was spent at Island gold mine and $500,000 at the Golden Wonder project.
And the company's exploration program for the coming year calls 45,000 meters of drilling at Beaufor to test for further development at depth and 26,000 metres of definition and exploration drilling at Island.
As for Golden Wonder, back in October Richmont announced it wouldn't pursue its joint venture option there after results from 16 holes for 2,037 metres didn't confirm continuity of an economically viable ore zone in the area it was targeting.
Another key element to the Richmont story is the company's strong cash position and lack of debt -- two factors that speak to the carefulness with which the company has been built since going public in 1985. Richmont's having just 26 million shares outstanding is also testimony to its financial sharpness, and leaves it with many options when it comes to raising new funds.
At year end cash and cash equivalents were $26 million, compared with $27.3 million at December 31, 2007.
Being in such a strong position has Richmont looking to stay on the acquisition path. Rivard says any possible acquisition would be made with an eye towards strengthening the company's position in Ontario and Quebec.
Still, Richmont isn't about to throw-off its carefully built balance sheet in a wild blaze of acquisitions.
"We're not looking to get debt on the balance sheet," Rivard says. "We're focused on using our working capital to fund acquisition and for the right projects."
A statement many chief executives would love to make, but only a very few are actually in a position to execute on.
The Island gold mine went into production in the fourth quarter of 2007 and currently has proven and probable reserves of 1.03 million tonnes grading 8.72 grams gold for 289,069 oz. of gold.
During the first nine months of 2008, the mine produced at approximately 65% of its design capacity. In the fourth quarter of 2008, production was at around 80% of design capacity.
The Beaufor mine produced 123,958 tonnes of ore at 8.62 grams for production of 34,353 oz. of gold in 2008.
Proven and probable reserves at the Beaufor Mine come in at 244,063 tonnes grading 8.89 grams per tonne for 69,792 oz. of gold.
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