Wednesday, August 17, 2016

Despite Weaker 2Q 2016 Results, Richmont Mines Still Looks Good

In my last article on Richmont Mines I claimed that 2Q 2016 results should have been weaker than before. And they were:

                                    source: Simple Digressions

Generally, all financial measures were worse than those reported in 1Q 2016. Currently the company is in its transition period - it goes deeper at its flagship property, Island Gold. However, it will take some time to start mining operations at high - grade Lower Zone of the Island Gold Mine. Hence, weaker results.

To mitigate these negatives, in 2Q 2016 Richmont sold more gold than it produced (23,320 ounces of gold produced vs. 24,888 ounces of gold sold).

In my opinion, it was the right decision - the management took advantage of higher gold prices.  This higher amount of gold sold had a major impact on better financial results than I forecasted (in my forecast I assumed that the company would have sold the same amount of gold it produced).

The table below shows the actual results compared to my forecast:

                               source: Simple Digressions

As the table shows, in 2Q 2016 the company's sales were C$40,618 thousand, a little bit higher than my forecast of C$37,970 thousand. On the other hand, direct costs of mining were very close to my forecast.

What now? To be honest, although 2Q 2016 was weaker than 1Q 2016, generally, the last quarter was similar to previous quarters. Or, better said, 1Q 2016 was an exceptional period. So, in my opinion, there are no signs of an incoming deterioration in the company's performance. Quite contrary - in the long-term Richmont is still an excellent play.

The best evidence of this thesis is the fact that the company sustains its 2016 production guidance - it should deliver 87,000 - 97,000 ounces of gold.

That is why I still own Richmont shares.

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