Friday, October 6, 2017

Alio Gold: Expect Very Poor 3Q 2017 Results

Yesterday Alio Gold (ALO), one of my favorite mining companies, released 3Q 2017 production figures:

source: Alio Gold

Having this data, it is possible to make an estimate of the gross margin delivered by the company in 3Q 2017 (gross margin is defined as revenue less direct costs). My estimate cannot be accurate because I am not able to look into the company's internal figures but...let me try using the average figures.

So, over the last four quarters Alio was processing its ore at an average cost of $9.6 per ton of ore processed. Translating this figure into total material mined (ore + waste) and  assuming that the amount of ore processed is equal to the amount of ore mined*, it means that the company was mining its material at the average cost of $3.4 per ton of material (ore + waste) mined.

According to the table above, in 3Q 2017 Alio had to remove 5.2 million tons of waste. To do it the company incurred the cost of $17.8M ($3.4 x 5.2 million tons). Now, to mine the ore Alio had to spend $5.8M ($3.4 x 1.7 million tons) so the total cost of mining was $23.6M ($17.8M + $5.8M).

According to the company, the 3Q 2017 revenue was $25.2M so a gross margin should have been around $1.6M ($25.2M less $23.6M).
For comparison reasons, the chart below shows gross margins, starting from 1Q 2016:

source: Simple Digressions

Am I bothered about it? Not at all - the company was expecting a very hard quarter so I am not surprised...

* - I cannot be sure about it - generally, some part of ore or waste mined comes from previous quarters

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