Golden Minerals (AUMN) - Cashflowing & No More Dilution?

We caught up again with Warren Rehn, President and CEO of Golden Minerals Company. He was excited to speak about gold and silver production at their newly producing Rodeo Mine as well as their path forward as a profitable mining company. 

Company Overview

Golden Minerals Company is a Colorado-based, junior precious metals producer with a pipeline of exploration projects in Mexico, Argentina and Nevada. In January 2021, with the maiden production of gold and silver at their Rodeo Mine, the company transitioned from exploration firm to precious-metals producer. It seeks to become a premier mid-tier producer of gold and silver. 

The company trades on the American Stock Exchange. Golden Minerals has 163 M shares outstanding. 

Management Team

In addition to Rehn, the management team consists of Robert Vogels, Senior Vice President and COO; and Karen Winkler, Director of Investor Relations. The company has a seven-person board of directors. 

Rhen’s View on the Gold Market

Rhen shared his views on the current status of the gold market. There is an inflationary backdrop, but it hasn’t been a consistent picture and there are a variety of investor and analyst views. From his perspective, investors are waiting to see exactly how the Fed reacts to this backdrop, what it will really mean in terms of interest rates, and therefore, on the rise or fall of the price of gold. 

Personally, Rhen is quite bullish on gold. He is looking for somewhere near $2000 per oz. by year-end. He is very confident that investors will see higher prices going forward, given the inflationary pressures and the huge amount of cash that’s available around the world. 

Would You Be Hurt if Gold Price Falls?

Rhen is not terribly concerned for his company if the gold price falls. At Rodeo Mine, they are quite profitable with gold at $1600. They are producing gold at Rodeo for about $900/oz. at this time. 

The Rodeo Asset

Rodeo is an open-pit gold mine that is 100%-owned by Golden Minerals. It is located in Durango State, Mexico. For the six months ending June 20, 2021, Rodeo had mined over 336,000 t of ore. 

The beauty of Rodeo is its very low capital cost to start. It’s incredibly rare to find a project that a gold mining company can start for USD $1 to 1.5 M, and that’s exactly what Rhen and the team did. They broke even in the first quarter and made money in the second quarter. Golden Minerals will be profitable based on Rodeo’s production this year. They will not have to go back to the markets for additional equity funding this year. 

The downside to Rodeo is that it only has a two-year life span with current reserves. Golden Minerals is currently actively exploring for more ounces there. The host rock is silicified and quite hard. They upgraded their drilling program to incorporate a reverse-circulation rig. They get drill-bit cuttings, not core, from this rig but it’s quite fast drilling and the cuttings are all they need for assaying. It’s still a couple of months out, but indications from the initial samples are quite positive. 

Within a couple of months they’ll know how much more mine life that they can get out of Rodeo. They actually have enough cash flow from Rodeo in the current mine lifespan to get them going on a very promising project, Velardeña. 

Velardeña Project and Feasibility Study

The Velardeña Project consists of two underground gold and silver mines and two mills for precious metal processing. It is located in Durango State, Mexico. Golden Minerals has a 100% interest in Velardeña. They are currently preparing to restart production at the property in late 2021 to 2022.

In order to reach that objective, the company has work to do.  One of these hurdles is the biooxidation plant that they want to build. It will cost about $6M to build this plant over the course of the next year. Rehn is waiting on a very specific cost estimate to come in. They will add that cost into the upcoming feasibility study to see if it's a go or not to build. The rest of the costs add the total up to about $10 M, but they can fund it internally from Rodeo and from the lead,  zinc, and silver sales of concentrates from Velardeña itself while they wait for the gold portion to come out of the bio-oxidation plant.

Based on the Preliminary Economic Assessment (PEA) that came out in 2020, they know that Velardeña will produce about 2 M oz.-equivalents of silver, with a fifty-fifty mix between silver and gold. That will be produced at less than $10 oz. silver price. Given a $23 oz. silver price, that provides a very nice margin and a more significant net cash flow stream from Velardeña when fully operational than they have at Rodeo. 

The PEA shows that the project will deliver over $10 M a year in net cash flow from the lead, zinc, and silver sales. Then, once the bio-oxidation portion comes in place, then that number doubles. What the bio-oxidation does is give the company a 90% recovery of gold, which they otherwise don’t have. Payback on capital comes quickly, within a year. 

By late 2021 or early 2022, they will know exactly what the bio-oxidation will cost and what the cost results will be. They have a very good idea of what it looks like now based on two previous studies, but Rehn wants the fine details so there are no surprises. 

Other Portfolio Pieces

Another part of the project inventory is the El Quevar property in Argentina. El Quevar is in an advanced stage of exploration. Barrick controls the action there because of an earn-in agreement put in place in 2020. They’re still advancing the project and very keen on it. They’re still looking for a huge gold deposit that they think is there, and Rehn expects to see them moving to a drill stage perhaps next year. 

In addition, Golden Minerals has other ongoing projects in Mexico and Argentina.  They plan on drilling at their epithermal deposit in the Yoquivo district of Mexico later in 2021. They are currently drilling at the Sarita Este project in Argentina. The beauty of having this cash flow from Rodeo is that it gives them the ability to pursue these projects without having to go back to the market for additional capital. 

Closing Comments

Finally being in production is a fantastic experience for Golden Minerals. It’s quite an accomplishment, especially with such a low capital spend. Rehn thinks the company is underappreciated. They have done what they said they would do. In fact, they have come in over initial estimates at Rodeo. They are advancing their other properties as well. 

To find out more, go to the Golden Minerals Website