Wednesday, July 13, 2016

Improvement At Jaguar Mining

Jaguar Mining, a small gold producer operating two mines in Brazil, published its 2Q 2016 operating results. In my opinion, these results were really impressive.

Let me show the economics of its two operating mines - Turmalina and Caete Complex. For comparison reasons, the revenue is calculated taking the fixed price of gold (as of 1Q 2016):

source: Simple Digressions

How to read this chart?

First of all, notice that in the case of Turmalina, its revenue and direct costs have been more or less the same since the beginning of 2015. As a result, Turmalina has been delivering similar high margins since the beginning of 2015. 

Well, I know that Turmalina is fine but the company's problem lies in Caete. In 2014 this mine was hardly cash flow positive (look at a small difference between revenue and costs). Fortunately, in 2Q 2016 Caete improved its operating measures significantly (look at the widening gap between revenue and costs).

Going to the real measures (and calculating the revenue using the average price of gold recorded in 2Q 2016) I assume that in 2Q 2016 the two mines delivered the following margins:

  • Turmalina: US$9.18 million
  • Caete: US$2.87 million
  • Total: US$12.05 million
If I am right (and I may be wrong because I do not know at what cost the company was processing and mining its ore in 2Q 2016), the margin delivered in 2Q 2016 should have been higher by US$2.36 million (an increase of 24.3%) than the margin delivered in 1Q 2016 (US$9.69 million). 

Another positive - in 1H 2016 Jaguar produced 45,419 ounces of gold so the 2016 Outlook (90,000 - 95,000 ounces of gold) seems to be quite easy to fulfill. 

Finally, a quick look at the Jaguar share prices:


It looks nice. Since June 2015 Jaguar shares have been stronger than the broad precious metals stock market (represented by GDX) - notice the red (or violet; sorry - I cannot see the difference between some colors) up-sloping line. 

What is more, today the company's shares are trading at quite a funny valuation of 7.6 times EV / EBITDA. They are relatively cheap.

Note: to calculate this figure I took the fully-diluted number of shares (318 million against 111 million un-diluted).

1 comment:

  1. Wow. Thanks Simple for the write up! Recently bought a position in this miner as I was attracted by the relative low valuations, and the fact that the current CEO was formerly from Crocodile Gold. Of course not forgetting Mr Eric Sprott having skin in this miner as well. Some interesting drill results

    Congrats on your B2Gold holdings! Fabulous 1H 2016!