Monday, July 18, 2016

Richmont Mines - Beware. In 2Q 2016 Weaker Results Expected

On July 12, 2016 Richmont Mines published its 2Q 2016 operating results. As my readers know, I am invested in Richmont so the company's success is my success as well. 

However, I think that the results reported in 2Q 2016 may be a negative surprise. Last quarter the flagship property, Island Gold, performed a little bit worse than in 1Q 2016:

source: Simple Digressions

Note: cells in yellow are my estimates

As the table show, in the second quarter the company was processing the ore of lower quality (substantially lower grade of 7.51 g / t vs. 11.31 g/t in 1Q 2016). It means that in 2Q 2016 the company could not get more than C$380.9 per ton of ore processed and sold (much less than in the previous quarter). 

To mitigate the negative impact of lower grades the company processed more ore (79,900 tons vs. 75,941 tons in 1Q 2016). However, it was surely not enough to overshadow the negative impact of lower grades. 

As a result, I believe that in 2Q 2016 the Island Gold mine delivered revenue of around C$30.4 million (C$43.3 million in 1Q 2016). This, together with practically no additional revenue delivered by the Beaufor mine (C$7.7 million vs. C$7.5 million in 1Q 2016) and no revenue from Monique (in 2Q 2016 this mine was idle) means that in 2Q 2016 the total revenue was much lower than in 1Q 2016 (C$38.1 million against C$52.7 million).

Of course, there are a few undisclosed figures (as, for example, total ounces of gold sold), that may improve the situation (for example, the company could sell some additional gold coming from Monique's stocks) but generally the gross margin generated in 2Q 2016 should have been lower than that reported in 1Q 2016 (C$16.0 million vs. C$27.9 million).

Lower margin means lower bottom line so expect worse 2Q 2016 results. 

And, paradoxically, gold prices, denominated in US dollars, were higher in 2Q 2016 than in 1Q 2016... 


  1. SD, tx for this post.

    I own RIC; and I recall that you do (or did) also.

    Q: are you inclined to hold or sell before the NR re Q2 financials in early august?

    Also, recalling your having written about DPM's sale of Kapan (DPM being another co. which I own and like and worth a look?), I note that hit a 52 week high today.

  2. Hi Joey,
    I am thinking about replacing RIC for something else but have not decided yet.
    As for DPM - I'll have a look at it.