GDXJ - i-80 Gold Q2: Some Progress This Quarter

2023-08-10 12:45:47 ET

Summary

• i-80 Gold Corp. reported its Q2 2023 earnings results, with revenues of $11.31 million and negative free cash flow of $28.90 million.
• Total gold production in Q2 2023 was 4,329 Au Oz at $1,952 per ounce sold.
• I recommend buying i-80 Gold Corp. shares between $2.01 and $1.95, with lower support at $1.85.

Introduction

The Reno, Nevada-based i-80 Gold Corp. (IAUX) reported its second-quarter 2023 earnings results on August 2, 2023.

Note: This article is my first article about the company.

According to the recent press release, IAUX is a Nevada-focused, growth-oriented gold and silver producer engaged in the exploration, development, and production of gold, silver, and polymetallic deposits.

The Company's principal assets include the Ruby Hill , Lone Tree , Granite Creek, McCoy-Cove, and FAD projects *. The Company wholly owns each property.

* On May 8, 2023, the Company completed the acquisition of Paycore Minerals Inc. Paycore’s principal asset is the FAD property that is host to the FAD deposit located immediately south of and adjoining the Company’s Ruby Hill Property in Eureka County, Nevada. The acquisition increased the size of the land package at Ruby Hill by more than 34%.

Looking at the chart, we can see that the acquisition had a chilling effect on the stock price.

Pursuant to the Arrangement, Paycore shareholders received 0.68 of an i-80 common share for each common share of Paycore held. Each Paycore warrant and Paycore option is exercisable for i-80 common shares, as adjusted in accordance with the exchange ratio under the Arrangement.

1 - 2Q23 Results Snapshot and Commentary

i-80 Gold posted a second-quarter gold production of 4,329 Au Oz at a realized gold price of $1,952 per ounce.

Also, IAUX sold 6,651 tons of mineralized material for proceeds of $2.8 million . The company generated a revenue of $ 11.31 million in 2Q23 with a net loss of 15.96 million, down significantly from an income of $19.28 million in 2Q22. The adjusted loss was $20.856 million or $0.08 per share.

The operating cash flow was negative $16.26 million in 2Q23, up from a negative $20.41 million in 2Q22.

Ryan Snow, Chief Financial Officer of i-80 Gold, said in the press release:

We continue to generate revenue from the Lone Tree and Ruby Hill residual leach programs as we advance exploration and definition drilling at Granite Creek, McCoy-Cove and Ruby Hill. With the additional capital raise, we will continue to advance i-80’s projects towards our ultimate goal of building a mid-tier Nevada focused producer.

2 - Investment thesis

As we can see, i-80 Gold Corp. is a new gold producer still in development and needs constant financing. In the press release, the company said (emphasis added):

i-80 Gold Corp. is a Nevada-focused mining company with a goal of achieving mid-tier gold producer status through the development of multiple deposits within the Company’s advanced-stage property portfolio with processing at i-80’s centralized milling facilities.

This crucial period for the company is a definitive source of dilution for the stock price, and investors should carefully analyze the risk attached to this ongoing need for cash that cannot be provided by cash flow from operations. Those stocks are often shaken by quick outbursts of euphoria followed by painful periods of consolidation, which is well-adapted to trading LIFO but quite disappointing from an investment viewpoint.

Thus, following the cash on hand and the cash-burning rate is crucial to initiating a position at the right time. The right time should be when financing will end, and commodity prices like Gold and Silver prices are bottoming out. Both of which are not the case right now.

2 - Stock performance

IAUX is closely following the VanEck Junior Gold Miners ETF (GDXJ) and is up 5% annually. However, the stock price dropped significantly from its high in January 2023.

i-80 Gold ((IAUX)) - Financial Historical Snapshot until 2Q23 - The Raw Numbers

Data Source: Company release .

Gold Production And Balance Sheet Details

1 - Revenues were $11.31 million in 2Q23

Revenues were $11.31 million in 2Q23, up from $6.38 million in the same quarter a year ago and from $4.55 million in 1Q23 (please see the graph above).

Net loss was $15.96 million , or $0.06 per diluted share, down from an income of $19.28 million in the same quarter last year.

2 - Free cash flow was negative $28.90 million in 2Q23

The company's free cash flow was negative $28.90 million in the second quarter of 2023, with a negative trailing 12-month free cash flow of $102.78 million.

Not surprising here. The generic free cash flow will remain negative until the company can complete the projects.

3 - Debt and liquidity.

The Cash and Cash equivalent was $19.36 million in 2Q23, down from $100.98 million in 2Q22.

LT debt was $155.16 million at the end of the second quarter.

Note: On August 1, 2023, the Company completed a private placement of common shares led by CIBC Capital Markets on behalf of a syndicate of underwriters. The Company issued an aggregate of 13,629,800 shares for C$2.70 per common share for aggregate gross proceeds of C$ 36.8 million.

The financing period is the most dilutive phase for such a company, and assuming more future financings and related dilution is crucial. Thus, be very careful, avoid investing a large amount of money, and expect more downside potential.

4 - Gold production details. Total production was 4,329 Au Oz in 2Q23.

Gold sales were 4,329 ounces at a realized gold price of $1,952 per ounce. Also, 6,651 tons of mineralized material were sold for proceeds of $2.8 million in 2Q23.

In the press release, CFO Ryan Snow said:

In the second quarter we continued to develop and completed “proof of concept” mining on multiple zones at the Granite Creek mine, completed the acquisition of Paycore Minerals to further consolidate the Eureka District, negotiated an Ore Sale and Purchase agreement for oxide mineralization and recently completed an equity raise to bolster the Company’s balance sheet

Two projects delivered gold production this quarter, Lone Tree and Ruby Hill, whereas Granite Creek generated 6,651 Tons sold for $2.8 million .

1 - Lone Tree

Lone Tree is expected to become the hub of i-80’s Nevada operations and the central processing facility for gold mineralization from the Granite Creek, McCoy-Cove, and Ruby Hill underground gold deposits.

Lone Tree produced and sold 2,700 ounces of gold during 2Q23 and 3,363 ounces of gold YTD from its residual leaching activities at a realized gold price of $1,983 and $1,979 per ounce sold.

2 - Granite Creek

Refractory material has been shipped to the Twin Creeks facility for processing under the toll milling agreement that is in place with Nevada Gold Mines (NEM/GOLD JV).

Beginning 2Q23, the oxide mineralized material from Granite Creek has been stockpiled and shipped to a third party as part of the Ore Sale Agreement. In 2Q23, the Company sold 6,651 tons of mineralized material under the Ore Sale Agreement for proceeds of $2.8 million .

IAUX completed 3,578 feet of horizontal advance at Granite Creek in 2Q23.

3 - McCoy-Cove

According to the company, The Cove deposit and the McCoy-Cove Property is expected to be the core asset in the Company’s “hub and spoke” business plan and likely the highest-grade gold deposit in the i-80’s portfolio.

The company continued underground core drilling delineation of the CSD Gap ore body at McCoy-Cove ( 13,350 feet ) in 2Q23. Also, IAUX completed 1,193 feet of development at McCoy Cove, with 143 feet remaining to complete the exploration ramp.

4 - Ruby Hill

Residual leaching activities at Ruby Hill produced and sold 1,629 ounces of gold in 2Q23 at a realized gold price of $1,899 per ounce sold. IAUX Continued the expansion of gold and polymetallic mineralization at Ruby Hill and received approval for a work plan for additional Ruby Hill exploration in 2Q23.

Technical Analysis and Commentary

IAUX forms an ascending triangle pattern with resistance at $2.25 and support at $1.98.

Descending channel patterns are short-term bearish in that a stock moves lower within a descending channel, but they often form within longer-term uptrends as continuation patterns. The descending channel pattern is often followed by higher prices, but only after an upside penetration of the upper trend line.

The short-term trading strategy is to trade LIFO about 55-65% of your position and keep a core long-term amount for a much higher payday. I suggest selling between $2.16 and $2.30 , possibly higher resistance at $2.38. I recommend buying IAUX between $2.01 and $1.95, with lower support at $1.85.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

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