Richmont Mines is one of my five stock picks included in my model precious metals miners portfolio. A few days ago the company released it 1Q 2016 results. Excellent results. Below you will find the summary of this report (the most important measures are marked with yellow color):
* - free cash flow is defined as cash flow from operations (as reported in financial statements) less expenditure on property, equipment, acquisitions etc.
** - cash flow from operations is defined as cash flow from operations (as reported in financial statements) less working capital issues
Note an increase in sales of 41.5% while the price of gold (realized) went up only 8.9%. It is an effect of much higher gold production and sales.
These excellent operating results (higher production at stable costs of production) had a tremendous positive impact on cash flow from operations (an increase of 120%), EBITDA (up146%) etc.
I am sure that my readers know that the main factor standing behind these results is the Island Gold Mine. Currently the company is going into deeper levels of Island Gold (below 400 meters). The ore there is of much better quality. For example, between 2011 and 2014 Richmont was processing the ore from upper levels with head grades in the range of 4.63 - 6.10 grams per ton.
In 2015, which was a transition year, the company was mining the ore grading 7.31 grams per ton, on average. In 1Q 2016 the average head grade was standing at 11.31 grams per ton!
The chart below summarizes these figures:
Well, due to the fact that Island Gold is a dominant property in the company's mineral portfolio, its excellent performance should be driving the company's results higher in the coming years:
Summarizing - in my opinion, Richmont Mines is one of the best world miners. Its flagship property, Island Gold, is still open for exploration so investors should expect additional, good news on this deposit in the coming future.
It is a negative note. Richmont is a growing company. It means that it should deliver better and better results in the coming future. Of course, its shareholders should be happy - Richmont share prices go up. However, there is one class of stakeholders that benefits even more. What is more, in my opinion, this class gets too much. This class is the company's management:
The chart above shows that the so-called "Share-based payments" account for around one third of total management compensation. Between 2010 and 2015 the company's management was paid C$32.6 million, of which as much as C$11.2 million was attributed to share-based payments (34.4% of total compensation).
It is not usual. For example, Barrick Gold usually pays its managers not more than 5% of their compensation in share-based payments (2015 Annual Report, Note 32, page 163). Well, I understand that Richmont is a much smaller company than Barrick. It means it has less cash to pay its managers decently therefore the company pays them with stock options. However, it also means that, indirectly, the company's management is paid by Richmont shareholders - between 2010 and 2015 the management exercised 2,828 thousand stock options. In other words, because the current share count is 58,651 thousand, Richmont shareholders diluted their stake by around 5% in order to compensate the management.