CA - i-80 Gold: Tough Times Now But Future Growth Is Great

2023-11-07 03:13:44 ET

Summary

• i-80 Gold Corp. reported its third quarter 2023 earnings results, with a net loss of $4.20 million and revenue of $13.22 million.
• The company's free cash flow was negative $25.77 million in 3Q23 and its debt increased to $176.20 million.
• i-80 Gold anticipates a surge in gold production starting in 4Q23 and is one of the largest owners of gold and silver resources in the US.
• I recommend buying IAUX between $1.22 and $1.30, with lower support at $1.18.

Introduction

Reno, Nevada-based i-80 Gold Corp. (IAUX) reported its third quarter 2023 earnings results on November 1, 2023.

Note: This new article updates the article published on August 10, 2023.

The Ruby Hill, Lone Tree, Granite Creek, McCoy-Cove, and FAD projects (IAUX acquired 100% rights on May 8, 2023) are among the company's main holdings.

Next to Nevada Gold Mines, a joint venture between Barrick Gold and Newmont Corp., i-80 is the district's largest gold resource holder, with control over five deposits, an autoclave, and two processing facilities.

The Lone Tree processing site that sits right on Interstate 80 has a refractory processing facility. It does include an auto claim, making it one of only 5 processing facilities in all of Nevada that has this capability. It's our goal over the next several years to start this facility by feeding it mineralization from our Ruby Hill, Granite Creek and Cove projects. (conference call)

IAUX is one of the largest owners of gold and silver resources in the United States.

Note: I-80 is also one of the largest holders of silver resources among US companies, with 104.3 M oz Ag indicated and 76.5 M oz Ag inferred.

1: 3Q23 Results Snapshot and Commentary

i-80 Gold posted a third quarter gold production of 4,585 Au Oz at a realized gold price of $1,895 per ounce . It also sold 16,059 tons of mineralized material under the oxide ore sale and purchase agreement in 3Q23 for a total of $4.5 million .

The company generated revenue of $13.22 million in 3Q23 with a net loss of $ 4.20 million, up significantly from a loss of $11.27 million in 3Q22. The operating loss was $17.63 million in 3Q23, compared to a loss of $12.26 million in 3Q22.

The operating cash flow was negative $14.20 million in 3Q23, down from a negative $0.76 million in 3Q22.

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

The Company reported a loss for the quarter of $16 million or $0.06 per share when adjusted for the impact of mark-to-market gains on the Company's convertible debt, outstanding warrants, gold prepay, and silver purchase and sale agreement.

2: Investment Thesis

As was previously said, i-80 Gold Corp. is a newly formed gold producer that is still in the development stage and requires a substantial amount of financing. Unfortunately for shareholders, this financing period presents an adverse risk of dilution but a great potential for growth.

The third quarter was particularly damaging, and the company ended up with 287.13 million shares outstanding diluted compared to 240.37 million in 3Q22, up 19.5%, and increased its debt to $176.20 million in 3Q23 from $114.92 million in 3Q22.

Investors must carefully weigh the risk involved in this ongoing cash flow requirement that cannot be satisfied by operating cash flow yet.

It might either be a boon or a bane, based on your expectations for this investment. This is a stock for you if you want to build wealth gradually and have the patience to wait for a significant change in value. It is important to know that the 5-year production growth plan is expected to be in excess of 400K Au oz per year .

Therefore, keeping an eye on the amount of cash on hand and the rate at which it is burning down is crucial to initiating a position at the right time. It should be when financing needs are about to end and commodity prices, like gold and silver, are ready to rally. I think we're getting close to that situation, and I consider IAUX attractive.

3: Stock Performance

IAUX has underperformed the VanEck Junior Gold Miners ETF ( GDXJ ) and is down 17% annually. The stock price dropped significantly from its high in January 2023 due to financing and acquisitions.

i-80 Gold: Financial Historical Snapshot Until 3Q23 - The Raw Numbers

Number is US$

Data Source: Company release .

Gold Production And Balance Sheet Details

1: Revenues were $13.22 Million in 3Q23

According to the graph above, revenues in 3Q23 were $13.22 million , up from $11.31 million in 2Q23 and down from $16.07 million in the same quarter last year. The net loss for the quarter decreased from $11.27 million to $4.20 million, or $0.01 per diluted share.

The CEO, Ryan Snow said i n the conference call:

The mine operating losses year-to-date were primarily the result of write-downs of leach pad inventory at both Ruby Hill and Lone Tree totaling $8.5 million. The company reported a net loss for the quarter of $4.2 million or $0.01 per share. When adjusted for the impact of mark-to-market gains on the company's convertible debt, outstanding warrants, gold prepay modification, gold prepay and silver purchase and sale agreement, the loss was $26 million or $0.09 per share.

2: Free Cash Flow was Negative $25.77 Million in 3Q23

Note: I use generic free cash flow, not including divestitures. It is the cash flow from operations minus CapEx.

In the third quarter of 2023, the company's free cash flow was negative $25.77 million , and its trailing 12-month free cash flow was negative $109.21 million.

The company's free cash flow will continue to be negative until IAUX can produce enough gold to make a profit.

3: Debt and Liquidity

In 3Q23, there was $37.74 million in cash and cash equivalents, compared to $75.99 million in 3Q22. LT's debt at the conclusion of the third quarter was $176.20 million, compared to $114.92 million in 3Q22.

The CEO Ryan Snow, said in the conference call:

the company's liquidity position. During the quarter, we completed the bought deal private placement and an amendment to the gold prepay, adding $46.6 million to the treasury. The company ended the quarter with $37.7 million in cash and had an inventory balance of $19.1 million. Current assets were $67.6 million, while accounts payable and accrued liabilities were $19.3 million and total current liabilities were $60.3 million, resulting in a current ratio for the company of 1.1:1.

An update on recent changes in financing:

1. On August 1, 2023, the company completed a private placement of common shares. An aggregate of 13,629,800 shares were issued by the company at a price of C$2.70 per common share for aggregate gross proceeds of US$27.7 million .
2. On September 20, 2023, the company entered into an amended and restated gold prepay purchase and sale agreement with OMF Fund III Ltd., and received aggregate gross proceeds of $20 million structured as an additional accordion under the existing gold prepay agreement.
3. The company paid back the third and fourth milestone payments associated with the acquisition of Ruby Hill for $10 million in cash and $10 million in company shares after the quarter ended.

For a company of this kind, the financing period is the most dilutive; therefore, anticipating additional financing in the future and the associated dilution is essential. As a result, exercise extreme caution, refrain from making big investments, and be prepared for more dilution.

4 - Gold Production Details: Total Production was 4,585 Au Oz in 3Q23.

At a realized gold price of $1,895 per ounce , 4,585 ounces of gold were sold in 3Q23. Additionally, 16,059 tons of mineralized material were sold for $4.5 million in revenue.

Good to know: The company anticipates a notable surge in i-80's quarterly gold production starting in 4Q23, as the mine regularly ships refractory mineralization to Twin Creeks/Nevada Gold Mines.

CEO Ryan Snow said in the conference call:

The mine operating losses year-to-date were primarily the result of write-downs of leach pad inventory at both Ruby Hill and Lone Tree totaling $8.5 million.

Technical Analysis & Commentary

IAUX forms a declining channel pattern with resistance at $1.60 and support at $1.26. The last few months were quite brutal for the stock due to a large financing activity, as explained earlier. RSI is now 45 and seems to indicate a bottom-forming

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 method is to trade LIFO with about 55-65% of your position; you will keep a core long-term for a considerably higher reward. To lower the risk, I advise raising your long position with your short-term gains.

I suggest selling between $1.55 and $1.65, with possibly higher resistance at $1.88. I recommend buying IAUX between $1.22 and $1.30, with lower support at $1.18.

Warning: The TA chart must be updated frequently to be relevant. 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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